What does a beta of 1.0 mean, and what does it indicate about an investment?

A beta of 1.0 means that an investment has the same volatility, or systematic risk, as the overall market. In other words, the investment’s returns tend to move in the same direction and at the same rate as the market as a whole. An investment with a beta of 1.0 is considered to be “market-neutral” because its returns are not expected to deviate significantly from the overall market’s returns.

A beta of 1.0 can be interpreted as an indication that the investment’s risk and return potential is similar to that of the overall market. This means that the investment is neither more nor less volatile than the market, and its returns are expected to be in line with the overall market’s returns. In this sense, an investment with a beta of 1.0 can be considered a benchmark or baseline for evaluating the performance of other investments.

For example, if an investor is considering investing in a stock with a beta of 1.5, it is expected to be more volatile than the market and have higher potential returns (and higher risk). Conversely, if an investor is considering investing in a bond with a beta of 0.5, it is expected to be less volatile than the market and have lower potential returns (and lower risk).

Overall, a beta of 1.0 indicates that an investment is expected to have similar risk and return potential to the overall market, and can be used as a benchmark for evaluating other investments.