What beta captures about risk

What does beta measure? Distinguish systematic risk from active (or residual) risk.

Sensitivity to the market. Beta is $\operatorname{Cov}(R_i,R_m)/\operatorname{Var}(R_m)$, the expected percentage move in the asset for a one percent market move. Systematic risk is the part explained by the market, which cannot be diversified away and is rewarded under CAPM; active or idiosyncratic risk is the residual (or the deviation from a benchmark), which diversification removes and which earns no premium.