The war has left many investors asking: How volatile are my investments?

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Feeling jittery about your investments these days? After hitting record highs over the past year, stock markets are starting to wobble. The war in Iran, higher oil prices, inflation and a host of other factors now threaten to dent portfolios.

At this moment, you may be asking yourself a simple question: How volatile are my investments?

One number that can help answer that question is beta.

Put simply, beta measures how volatile a stock is compared to movements in the broader market. The market itself – represented by an index such as the S&P 500 or S&P/TSX Composite – is assigned a beta of 1.0. A stock with a beta greater than 1.0 is more volatile than the market; below 1.0, less volatile.

If the S&P 500 rises 1 per cent, a stock with a beta of 1.5 would be expected to rise 1.5 per cent. A 0.5 beta stock would gain 0.5 per cent. The reverse applies in a downturn. If the index falls 1 per cent, the higher-beta stock would drop 1.5 per cent, while the lower-beta stock would decline 0.5 per cent.

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In theory, high-beta stocks outperform in bull markets and fall harder in downturns. Low-beta stocks rarely lead rallies but may provide downside protection.

Beta is easy to find. Financial websites such as The Globe and Mail and Yahoo Finance list it alongside other company statistics.

Betas also tend to cluster by sector. Technology companies typically carry higher betas because their earnings and share prices are more sensitive to economic conditions and other outside factors. Nvidia Corp.’s NVDA-Q beta is 2.31. Meta Platforms Inc. META-Q sits at 1.28. Companies that sell essential goods and services post lower numbers. Think grocery retailers and utilities. Loblaw Cos. Ltd. L-T is 0.30. Hydro One is 0.22.

Beta may seem like a magical stock-picking tool to spot which shares will surge on sunny market days and which ones will hold up in a storm. But it has limitations.

For starters, beta looks backward. It shows how a stock has behaved, not what it will do next. A steady historical trading pattern can get upended by an accounting scandal, a new chief executive officer, supply chain problems, a competitor’s merger or, as we’re now finding, global events such as a war.

“Beta assumes the company hasn’t changed,” says Scott Clayton, senior editor and analyst at investment newsletter publisher The Successful Investor.

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Mr. Clayton also points to cases in which beta appears disconnected from reality. Consider gold. Historically, its price rises during market downturns. More recently, it has outperformed a surging S&P 500.

Yet gold betas don’t reflect any of that. Gold ETFs often carry betas below 1 (around 0.2 to 0.8), suggesting lower volatility. “Some gold investments have around the same betas as a power utility, which doesn’t make any sense,” Mr. Clayton says.

Betas can also vary depending on how they’re calculated. Some financial sites use five years of data; others three. Different inputs can produce different figures.

Academic research adds another twist. Scholars have identified a beta anomaly: Over long periods, high-beta stocks tend to underperform low-beta stocks on a risk-adjusted basis. That finding gave rise to a strategy called “betting against beta,” in which investors short high-beta shares and buy low-beta ones. The theory is that high-beta stocks are often overpriced while low-beta names are overlooked.

Daniel Andrei, an associate professor of finance at McGill University, has studied the issue. A paper he co-authored in 2022 found that while beta matters, its effects are often overstated. High-beta stocks tend to deliver less upside than their betas predict. Low-beta stocks do somewhat better than expected.

In practical terms, a stock with a beta of 1.5 is expected to move one-and-a-half times as much as the market. In reality, he says, it behaves more like a stock with a beta of 1.25. Likewise, a 0.5 stock may generate returns closer to those of a 0.75 beta stock.

Prof. Andrei’s research offers a rule of thumb to adjust raw beta: Add 1 to the firm’s beta, then divide by 2. Nvidia’s beta of 2.31, for example, would adjust to 1.65.

“Beta isn’t broken but raw betas can be too extreme,” he says.

So how should investors use beta?

Mr. Clayton says it should be one factor among many to evaluate a firm. “If the beta supports the view we’ve formed of the stock based on its finances, fundamentals and other factors, that’s a good thing. But if the two diverge, we need to dig deeper.”

Comparing a company’s beta with industry peers can also be revealing. If a power company in the low-volatility utility sector carries an unusually high beta, “you want to take a closer look to see why that’s out of whack,” he says.

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Still, experts caution against selecting stocks on beta alone. “I wouldn’t use it in isolation,” says Ben Felix, chief investment officer at PWL Capital Inc. “It leaves a lot of the expected return story about a company unexplained.”

Investors who want exposure to different betas can use exchange-traded funds, which have their own beta figures. A market capitalization weighted index fund offers exposure to market beta, for example, and a low-beta ETF offers exposure to a basket of lower-beta firms.

But Mr. Felix says low-volatility ETFs don’t necessarily outperform broad index funds over a given period. The BMO Low Volatility Canadian Equity Fund ZLB-T averaged annual total returns of 11.07 per cent over the 10 years to Jan. 30, 2026. The iShares Core S&P/TSX Capped Composite Index ETF XIC-T averaged 12.99 per cent.

Michael Williams, head of investments and advice at RBC InvestEase, says beta can be useful when thinking about asset allocation and risk tolerance. An investor nearing retirement, for example, may want to tilt toward lower-beta holdings.

But he agrees that focusing on a single stock’s beta misses the bigger financial picture.

“It’s better to think about beta as part of a total portfolio. You can’t control the market, but you can control your beta. So, align your goals with what you’re trying to achieve.”