Enter the company and market return to get beta of the company through this tool.
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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.
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.
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.
As we have the in the following table:
Obs. | ||
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. | 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.
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:
Output:
The beta calculator calculates the following results:
A negative beta value shows a clear distinction with respect to the market value of an index. But it rarely happens.
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?
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