Which of the following indicates why Beta is an important metric?

Beta is a crucial metric as it measures the volatility or risk of a particular stock in relation to the overall market. Specifically, it indicates how much the stock's price is expected to move in comparison to market movements. A Beta greater than 1 suggests that the stock is more volatile than the market, meaning it tends to fluctuate more dramatically in price. Conversely, a Beta less than 1 suggests that the stock is less volatile, indicating that it is more stable.

This understanding of Beta allows investors to assess whether a stock fits within their risk tolerance. For instance, a risk-averse investor may prefer stocks with a Beta under 1, while a risk-seeking investor might look for stocks with a Beta above 1 to capitalize on potentially higher returns despite the increased risk. This metric is particularly valuable in the context of portfolio diversification and capital asset pricing.

The other choices do not reflect the primary purpose of Beta; they address factors unrelated to risk assessment. For example, a company's dividend policy or earnings potential are determined by different financial metrics and analyses, while market manipulation strategies are concerns that fall outside the scope of what Beta is meant to represent.