What does a high beta security typically do in comparison to the market during gains and losses?

A high beta security is known for its volatility relative to the overall market. Specifically, it tends to move more dramatically than the market during periods of both gains and losses. When the market experiences gains, a high beta security usually outperforms the market because its value rises more steeply. Conversely, when the market declines, a high beta security typically underperforms because it tends to fall more sharply than the overall market.

This behavior is a fundamental characteristic of high beta securities. Investors often look to high beta stocks for potential higher returns during bullish market conditions, but they also acknowledge the increased risk during bearish conditions. Therefore, the correct answer highlights that these securities generally outperform compared to the market when gains are present, while they tend to underperform during losses. This distinctive pattern of behavior is crucial for investors to consider when assessing risk and reward in their portfolios.