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Volatility is the tendency of the market price of a given investment to over react to changes in the market.

Expanded Definition

Beta is the usual measure of volatility. A beta of 1.0 indicates a stock that perfectly tracks an reference index such as the S&P 500 Index. A high beta stock is more volatile and changes more than the index. A low beta stock is less volatile and changes less than the index.

Portfolio management can include balancing beta to match a value suitable for the risk tolerance of the investor.

Investment strategies can include selecting high beta stocks during a bull market and low beta stocks in a bear market.

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