If a stock has a beta of 1, what does it signify?

A stock with a beta of 1 signifies that it has an average risk relative to the overall market. Beta is a measure of the sensitivity of a stock's returns to changes in the returns of the market as a whole. When a stock has a beta of 1, it indicates that if the market moves up or down by a certain percentage, the stock is expected to move in the same direction by a similar percentage. This means the stock's volatility is commensurate with that of the market.

In contrast, a beta less than 1 would indicate lower volatility and risk compared to the market, while a beta greater than 1 suggests higher volatility and risk. Therefore, a beta of 1 directly reflects average risk, aligning the stock's performance with that of the market. This understanding of beta is crucial for investors when assessing the risk profile of their investments and making informed decisions based on their risk tolerance and investment strategy.