Beta Formula (Top 3 Methods) | Step by Step Examples to Calculate Beta (2024)

FAQs

How to calculate beta with an example? ›

Beta = Covariance (Rs, RI) / Variance (RI)

If a stock returned 8% last year and the index returned 5%, a rough estimate of beta is: 8 / 5 = 1.6. This method only compares two data points. For more data points, running the covariance and variance in a spreadsheet such as Excel is recommended.

Calculating Beta

A security's beta is calculated by dividing the product of the covariance of the security's returns and the market's returns by the variance of the market's returns over a specified period.

Accounting betas are estimated by regression of the company's return on assets against the average return on assets for large sample of firms as included in a market index. Betas determined by using accounting data instead of stock market data is known as accounting data.

The covariance method calculates beta by dividing the covariance between the security's returns and the market's returns by the variance of the market's returns. The covariance is a measure of how two variables move together, and the variance is a measure of how volatile a variable is.

Examples of Beta

As an example, consider an electric utility company with a β of 0.45, which would have returned only 45% of what the market returned in a given period. Negative β – A company with a negative β is negatively correlated to the returns of the market.

The first is to use the formula for beta, which is calculated as the covariance between the return (r_a) of the stock and the return (r_b) of the index divided by the variance of the index over three years.

Beta functions are a special type of function, which is also known as Euler integral of the first kind. It is usually expressed as B(x, y) where x and y are real numbers greater than 0. It is also a symmetric function, such as B(x, y) = B(y, x). In Mathematics, there is a term known as special functions.

How to calculate a stock's beta. A stock's beta is equal to the covariance of the stock's returns and its benchmark index's returns over a particular time period, divided by the variance of the index's returns over that period. As a formula, β = covariance(stock returns, index returns) / variance(index returns).

The Newmark-beta method is a method of numerical integration used to solve certain differential equations. It is widely used in numerical evaluation of the dynamic response of structures and solids such as in finite element analysis to model dynamic systems.

If X∼beta(α,β), then: the mean of X is E[X]=αα+β, the variance of X is Var(X)=αβ(α+β)2(α+β+1).

What is beta and how is it measured? ›

Beta is a statistical measure of the volatility of a stock versus the overall market. A beta above 1 means a stock is more volatile than the overall market. A beta below 1 means a stock is less volatile than the overall market. The S&P 500, Dow Jones Industrial Average, and Nasdaq 100 are frequently used beta measures.

The formula for the beta of an individual stock within a portfolio takes the covariance divided by the variance. Investors can also find the correlation between the market index standard, multiply it by the stock's standard deviation and divide it by the market index's standard deviation.

The beta-particle emission from a sediment or rock sample can be measured very precisely using beta-counting instruments. The observed count rate is largely a function of the radionuclide concentration in the sample, so has the potential to provide a precise estimate of the natural radiation dose rate.

As the most likely scenario has a more significant impact on the outcome, you multiply the value by 4 while the overall divisor increases to 6. The formula for calculating the beta distribution method is:Time / Cost estimate = (Optimistic estimate + 4 × Most likely estimate + Pessimistic Estimate) / 6.

The beta ratio is an indicator of how well a filter controls particulate: i.e., if one out of every two particles (>xmm) in the fluid pass through the filter, the beta ratio at xmm is 2, if one out of every 200 of the particles (>xmm) pass through the filter the beta ratio is 200.

The market is described as having a beta of 1. The beta for a stock describes how much the stock's price moves compared to the market. If a stock has a beta above 1, it's more volatile than the overall market. For example, if an asset has a beta of 1.3, it's theoretically 30% more volatile than the market.

CAPM Beta Formula

To calculate a CAPM beta, subtract the expected market return from the expected investment return, then divide by the result of the market return minus the risk-free return.