I Instructions: Use this calculator to find out the Beta for the stock finance of a company in an excel sheet. Please input the Risk-free rate (%), Expected return of the market (%), and Market rate of return in the form below
Definition of Stock Portfolio Beta
Beta in finance is a calculation of systematic risk or volatility of a portfolio or security relative to the overall market risk. Beta is affiliated with market risk. Market Risk may also be called Beta.
Beta for decision making
β=1
β>1
β<1
Where;
β=1 means Risk in portfolio security is equal to Market Risk
β=1 means when we invest in the market, we bear some risk. The same risk we have to bear when we invest in our portfolio. Let say, if we invest in a security whose Beta is 1 means we have to bear the same risk in the company as if we invest in the market.
Risk while investing in the market = Risk while investing in a security whose Beta is one
β>1 means Risk in portfolio security is more than Market Risk
If we invest in portfolio security whose Beta is greater than one then we have to bear more risk in security as compared to the risk when we invest in the market e.g. beta of newly opened company > 1 i.e. more than the beta of the market.
Risk while investing in portfolio security (whose Beta > 1) > the Risk while investing in the market.
B < 1 means Risk in XYZ company is less than Market Risk
If we invest in portfolio security whose Beta is less than one then we have to bear less risk in security as compared to the risk when we invest in the market e.g. Beta of old and well-established security is less than one i.e. less than the market.
If Beta = -1 shows the opposite correlation with the market.
Risk while investing in a company (whose Beta > 1) > the Risk while investing in the market
Beta Formula Finance
Expected return = Er = Rf + β (Rm– Rf)
Er = Expected Return of Investment
Rf = Risk-Free Return
β = Market Risk Beta of Investment
Rm = Return when taking Risk from the Market
Rm– Rf = Market Risk Premium