Financial Terms / beta

Discover the Dynamic Beta

Beta is a measure of a security's volatility compared to the market as a whole, making it a dynamic and important factor to consider when assessing performance.


β = Cov(Ri,Rm) / Var(Rm)

How do I calculate the beta?

Beta is a measure used in financial analysis to measure the risk-reward ratio of a stock. The formula for calculating beta is β = Cov(Ri,Rm) / Var(Rm) where Ri is the return of the stock you are analyzing and Rm is the return of the market. Beta can be calculated manually or using programs like Sourcetable.

What is Beta?

Beta is a measure of systematic risk associated with a security, portfolio, or investment opportunity. It is used in the capital asset pricing model (CAPM) to price risky securities and to estimate expected returns of assets.

What is the Capital Asset Pricing Model?

The Capital Asset Pricing Model (CAPM) is a model used to determine the expected return of an asset given its level of risk. The formula for CAPM is: E(Ri) = Rf + ßi(E(Rm) - Rf), where E(Ri) is the expected return of the asset, Rf is the risk-free rate, ßi is the beta coefficient of the asset, and E(Rm) is the expected return of the market portfolio.

Key Points

How do I calculate beta?
β = Cov(Ri,Rm) / Var(Rm)
Beta Measures Volatility
Beta is a measure of the volatility of a security or portfolio compared to the market as a whole. This allows investors to assess how their investments may move in relation to the market.
Dynamic Measurement
Beta is a dynamic measure, meaning that it is constantly changing as the market fluctuates. As such, investors must pay close attention to their beta and make adjustments accordingly.

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