Beta Calculator

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.	$r_{M}$	$r_{S}$
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.	$r_{M}$	$r_{S}$	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?