How is "Beta" defined in finance?

In finance, "Beta" is defined as a measure of a stock's volatility in relation to the market. It quantifies the sensitivity of a stock's returns to the returns of a benchmark index, typically the overall market, such as the S&P 500. A beta of 1 indicates that the stock's price moves with the market, a beta greater than 1 means the stock is more volatile than the market, and a beta less than 1 suggests that the stock is less volatile. This characteristic makes beta a crucial metric for investors who want to understand the risk associated with a specific stock in the context of their portfolio.

The other choices do not accurately reflect the definition of beta in financial terms. For example, the measure of a stock's performance against its earnings relates more to fundamental analysis ratios like the price-to-earnings ratio rather than volatility. The ratio of a company's liabilities to its assets speaks to leverage and solvency, which are different financial metrics, and the calculation of a stock's dividend yield pertains to income investment rather than the stock's risk profile against market movements. Thus, beta specifically focuses on volatility and risk assessment in relation to market movements, making it an essential concept for investors and finance professionals.