Which factor does "beta" measure in investment?

Beta is a key measure in investment that reflects the volatility of an asset or portfolio in relation to the broader market. Specifically, it indicates how much an asset's price is expected to change in response to movements in the market as a whole. A beta value greater than one indicates that the asset is more volatile than the market, while a beta of less than one signifies that the asset is less volatile.

By measuring this relationship, beta helps investors assess the risk associated with an investment relative to the market, allowing for better-informed decisions about portfolio construction and risk management. This characteristic is particularly valuable for understanding the potential for returns as well as the risk involved in holding a particular asset based on market movements.

The other options do not accurately describe what beta measures. The first choice refers to an overall average return rather than volatility. The total risk of an asset is typically understood in terms of both systematic and unsystematic risk, whereas beta specifically addresses systematic risk, which is market-related. Lastly, the fixed income return speaks to interest payments and yields, which are unrelated to the concept of beta and its function in measuring market sensitivity and volatility.