Beta coefficient is another term for the beta. It is a measure of the risk of a stock or portfolio in comparison to the market risk. The CAPM (Capital Asset Pricing Model) uses the beta coefficient. It only takes systematic risk into account as it is related to the whole economy and not to a specific industry. And hence, we cannot avoid it. Beta Calculator helps in making calculations easier.
To calculate the beta of a security or portfolio, we divide the covariance between the return of security and market return by the variance of the market return.
The formula of beta is as follows:
Beta = Covariance (rs, rm) / Variance (rm)
rs = Return on Security
rm = Market Return
About the Calculator / Features
The beta calculator is an easy-to-go online tool that quickly calculates the beta coefficient by simply inserting the following figures into it:
- Covariance (rs, rm)
- Variance (rm)
How to Calculate using Beta Calculator
The user has to simply provide the following details into the calculator for a quick result of the calculation.
Covariance is a tool for measuring the statistical relationships between two different variables. The result of covariance lies between -∞ to +∞. The formula for calculating Covariance is as follows:
Covariance = ∑ (xi – x̄) (yi – ȳ) / (n – 1)
Where, x & y = data value of x & y respectively.
x̄ = Average of data values of x
ȳ = Average of data values of y
n = number of data values
Variance is the square of standard deviation. It is denoted as (σ2). It is the total of each value in the data set subtracted by the average of the data set and divided by the total numbers in the data set less one. The variance can be calculated by using the following formula:
Variance = ∑ (xi – x̄)2 / (n – 1)