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# Beta Calculator

Enter the company and market return to get beta of the company through this tool.

This advanced stock beta calculator will calculate the beta of a company in accordance with the share market. The tool considers the regression model to compare the return of the firm and market for the same duration of time.

## What Is Beta?

In finance: “Beta is regarded as the comparison between the market index and the historical volatility of a company” Basically, calculating the beta of a stock helps finance experts to estimate the return for a certain risk they will take.
• If beta > 1.0, it means that the stock has more worth than the market
• If beta < 1.0, it indicates that the stock value is far less than that of the market

## How To Calculate Equity Beta of a Stock?

A company has invested certain shares in a business for which the stats for both the company and the market are as follows: Company’s Return = 2, 1, 4, 25, 4, 4 Market’s Return = 2, 7, 6, 8, 2, 7 Calculate beta to estimate whether the stock’s price goes higher or lower than the market.

### Solution:

As we have the in the following table:
 Obs. rM rS 1 2 2 2 7 1 3 6 4 4 8 25 5 2 4 6 7 4
Now we will calculate the regression coefficient.
 Obs. rM rS Xᵢ² Yᵢ² Xᵢ · Yᵢ 1 2 2 4 4 4 2 7 1 49 1 7 3 6 4 36 16 24 4 8 25 64 625 200 5 2 4 4 16 8 6 7 4 49 16 28 Sum = 32 40 206 678 271
$$SS_{XX} = \sum^n_{i=1}X_i^2 - \dfrac{1}{n} \left(\sum^n_{i=1}X_i \right)^2$$ $$= 206 - \dfrac{1}{6} (32)^2$$ $$= 35.333$$ $$SS_{YY} = \sum^n_{i=1}Y_i^2 - \dfrac{1}{n} \left(\sum^n_{i=1}Y_i \right)^2$$ $$= 678 - \dfrac{1}{6} (40)^2$$ $$= 411.33$$ $$SS_{XY} = \sum^n_{i=1}X_iY_i - \dfrac{1}{n} \left(\sum^n_{i=1}X_i \right) \left(\sum^n_{i=1}Y_i \right)$$ $$= 271 - \dfrac{1}{6} (32) (40)$$ $$= 57.667$$ $$\hat{\beta}_1 = \dfrac{SS_{XY}}{SS_{XX}}$$ $$= \dfrac{57.667}{35.333}$$ $$= 1.632$$ As the beta value is greater than 1.0, it means that the stock value is higher than the market index.

## Working of Equity Beta Calculator:

Our beta portfolio calculator is loaded with a simple user-friendly interface that makes your calculations much easier and swift. Let’s find out how! Input:
• Enter the company’s & market’s returns in their respective boxes
• Tap Calculate
Output: The beta calculator calculates the following results:
• Beta of a company
• Step by step calculations

## Faqs:

### Can Beta Be Negative?

A negative beta value shows a clear distinction with respect to the market value of an index. But it rarely happens.

## References:

From the source Wikipedia: Beta (finance), Interpretation of values, Importance as risk measure, Technical aspects, Choice of market portfolio and risk-free rate, Empirical estimation, Equilibrium use: fair reward for risk?