Beta Stock Calculator
Calculate stock beta coefficient to measure systematic risk and volatility relative to the market. Beta helps investors understand how a stock's price moves compared to the overall market.
Beta Calculation
Enter annual returns for the stock and market to calculate beta.
Beta Results
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Volatility:
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Market Analysis
Market Sensitivity:
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Diversification:
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Investment Strategy:
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Business Insights
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Understanding Stock Beta and Systematic Risk
Stock beta measures a stock's volatility relative to the overall market. It quantifies systematic risk and helps investors understand how much a stock's price tends to move with market fluctuations.
What is Stock Beta?
Definition
- Beta measures systematic risk
- Shows market sensitivity
- Compares stock to market index
- Used in CAPM and portfolio theory
Interpretation
- Beta = 1: Matches market volatility
- Beta > 1: More volatile than market
- Beta < 1: Less volatile than market
- Beta < 0: Moves opposite to market
Beta Calculation Methods
Statistical Approach
Using regression analysis
Formula
- Beta = Cov(R_stock, R_market) / Var(R_market)
- Cov = Covariance of stock and market returns
- Var = Variance of market returns
- Requires historical return data
Simplified Method
- Compare stock and market returns
- Calculate relative volatility
- Use regression slope
- Approximates statistical beta
Beta Categories and Risk Levels
| Beta Range | Risk Level | Characteristics | Investor Profile |
|---|---|---|---|
| Beta < 0 | Negative Beta | Moves opposite to market | Hedge funds, contrarians |
| 0 < Beta < 0.5 | Low Risk | Defensive stocks, utilities | Conservative investors |
| 0.5 < Beta < 1.0 | Moderate Risk | Balanced volatility | Balanced investors |
| 1.0 < Beta < 1.5 | High Risk | Growth stocks, tech | Aggressive investors |
| Beta > 1.5 | Very High Risk | Speculative stocks | High-risk tolerance |
Beta in Portfolio Management
Portfolio Beta
- Weighted average of individual betas
- Determines portfolio volatility
- Used for risk assessment
- Target beta for portfolio construction
Diversification Impact
- Low beta stocks reduce portfolio risk
- High beta stocks increase potential returns
- Beta affects correlation
- Systematic risk cannot be diversified
Beta Limitations
Historical Data
- Based on past performance
- May not predict future
- Market conditions change
- Look-back period matters
Company Changes
- Business model changes
- Industry shifts
- Leverage changes
- Beta can change over time
Beta and Investment Strategy
Defensive Investing
- Low beta stocks (< 0.5)
- Stable during market downturns
- Utilities, consumer staples
- Preservation of capital
Growth Investing
- High beta stocks (> 1.5)
- Higher potential returns
- Technology, growth sectors
- Higher risk tolerance
Key Takeaways for Stock Beta
- Beta measures a stock's volatility relative to the market
- A beta of 1 indicates the stock moves with the market
- Beta > 1 means the stock is more volatile than the market
- Beta < 1 means the stock is less volatile than the market
- Beta is used in CAPM to calculate expected returns
- Portfolio beta determines overall portfolio risk
- Beta can change over time due to company or market changes
- Understanding beta helps in asset allocation and risk management