EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login
Home Finance Finance Resources Finance Formula Beta Formula
Secondary Sidebar
Finance Blog
  • Finance Formula
    • Skewness Formula
    • Fixed Asset Turnover Ratio Formula
    • Forecasting Formula
    • EBITDA Margin Formula
    • Accounting Ratio Formula
    • Deferred Annuity Formula
    • Capital Investment Formula
    • Ratio Analysis Formula
    • Loss Ratio Formula
    • Benefit-Cost Ratio Formula
    • Probability Distribution Formula
    • Cash Conversion Cycle Formula
    • Accrued Income
    • DCF Excel summary
    • Price to Earning Ratio Formula
    • Current Yield of Bond Formula
    • Earnings Per Share Formula
    • Manufacturing Overhead Formula
    • FCFF Formula
    • Predetermined Overhead Rate Formula
    • Times Interest Earned Ratio Formula
    • Bank Efficiency Ratio Formula
    • Capital Expenditure Formula
    • Expense Ratio Formula
    • WACC Formula
    • Activity Ratio Formula
    • Standard Error Formula
    • Forward Rate Formula
    • Gearing Formula
    • Prime Cost Formula
    • Productivity Formula
    • t-Test Formula
    • Risk Free Rate Formula
    • Tax Shield Formula
    • Sortino Ratio
    • Reserve Ratio Formula
    • Bond Formula
    • Annualized Rate of Return Formula
    • Conditional Probability Formula
    • Financing Formula
    • Future Value of an Annuity Formula
    • For Profit vs Non Profit
    • Deadweight Loss Formula
    • Inflation Formula
    • Amortized Loan Formula
    • Horizontal Analysis Formula
    • Marginal Utility Formula
    • Kurtosis Formula
    • Macaulay Duration Formula
    • Multiplier Formula
    • Modified Duration Formula
    • Operating Leverage Formula
    • Payout Ratio Formula
    • Statistics Formula
    • Sampling Error Formula
    • Trend Analysis Formula
    • Taylor Rule Formula
    • Put Call Parity Formula
    • Annual Return Formula
    • Discount Rate Formula
    • Cash Flow Formula
    • Dilution Formula
    • Attrition Formula
    • Operating Expense Formula
    • Interpolation Formula
    • Annuity Due Formula
    • Bond Yield Formula
    • Turnover Ratio Formula
    • Efficiency Formula
    • Revenue Per Employee
    • Regression Line Formula
    • Yield to Maturity
    • Pearson Correlation Coefficient Formula
    • Accounting Formula
    • Fiscal Deficit Formula
    • Tax Multiplier Formula
    • Efficiency Ratio Formula
    • Demand Elasticity Formula
    • Gross Margin Formula
    • Elasticity Formula
    • Marginal Benefit Formula
    • Depreciation Formula
    • Cost-Benefit Analysis Formula
    • Percentage Change Formula
    • Levered Beta Formula
    • Shares Outstanding Formula
    • Capital Gain Formula
    • Convexity Formula
    • Gross Income Formula
    • Net Exports Formula
    • Producer Surplus Formula
    • Accounting Rate of Return Formula
    • Net Cash Flow Formula
    • Labor Force Participation Rate Formula
    • Moving Average Formula
    • Net Worth Formula
    • Accounting Profit Formula
    • Disposable Income Formula
    • Discount Formula
    • Average Variable Cost Formula
    • Total Variable Cost Formula
    • Product Cost Formula
    • Marginal Product Formula
    • Break-Even Sales Formula
    • Return on Sales Formula
    • Cost of Goods Manufactured Formula
    • Average Fixed Cost Formula
    • Stock Turnover Ratio Formula
    • Operating Ratio Formula
    • Equity Ratio Formula
    • Net Present Value Formula
    • Aggregate Demand Formula
    • Volatility Formula
    • Marginal Product of Labor Formula
    • Z Test Statistics Formula
    • Standard Cost Formula
    • Velocity of Money Formula
    • Invested Capital Formula
    • Unlevered Beta Formula
    • Bank Reconciliation Formula
    • Portfolio Return Formula
    • Central Tendency Formula
    • Accumulated Depreciation Formula
    • Intrinsic Value Formula
    • Decile Formula
    • Vector Cross Product Formula
    • Effective Annual Rate Formula
    • CAGR Formula
    • Mode Formula
    • Arithmetic Mean Formula
    • Real GDP Formula
    • Gini Coefficient Formula
    • Expected Value Formula
    • Price Elasticity of Supply Formula
    • Net Operating Income Formula
    • Profit Percentage Formula
    • GDP Per Capita Formula
    • Altman Z Score
    • Quartile Deviation Formula
    • Return on Capital Employed Formula
    • Consumer Price Index Formula
    • Economic Profit Formula
    • Market Share Formula
    • Real Interest Rate Formula
    • Income Elasticity of Demand Formula
    • Income From Operations Formula
    • Indexation Formula
    • Sales Formula
    • Money Multiplier Formula
    • GDP Deflator Formula
    • Residual Income Formula
    • Effective Interest Rate Formula
    • Coupon Bond Formula
    • Current Account Formula
    • Total Cost Formula
    • Total Expense Ratio Formula
    • Net Sales Formula
    • Percentage Decrease Formula
    • Uncertainty Formula
    • Nominal GDP Formula
    • Effect Size Formula
    • Delta Formula
    • Cost of Sales Formula
    • Fixed Cost Formula
    • Unemployment Rate Formula
    • Present Value of Annuity Formula
    • Compounding Formula
    • Geometric Distribution Formula
    • National Income Formula
    • Accounts Receivables Turnover Formula
    • Integer Formula
    • Ending Inventory Formula
    • Owner's Equity Formula
    • Capacity Utilization Rate Formula
    • Interest Formula
    • Nominal Interest Rate Formula
    • Risk Premium Formula
    • Interest Coverage Ratio Formula
    • Gross Profit Margin Formula
    • Diluted EPS Formula
    • Return On Average Equity Formula
    • Return on Average Assets Formula
    • Working Capital Formula
    • Revenue Per Employee Ratio Formula
    • Capital Employed Formula
    • Rule of 72 Formula
    • Inventory Turnover Ratio Formula
    • Preferred Dividend Formula
    • Retention Ratio Formula
    • Present Value Factor Formula
    • Equity Multiplier Formula
    • Continuous Compounding Formula
    • Return on Assets (ROA) Formula
    • Portfolio Variance Formula
    • Weighted Average Formula
    • Net Working Capital Formula
    • Tax Equivalent Yield Formula
    • Poisson Distribution Formula
    • Current Ratio Formula
    • Debt Ratio Formula
    • Quick Ratio Formula
    • Payback Period Formula
    • Marginal Cost Formula
    • Debt to Income Ratio Formula
    • Book Value Per Share Formula
    • Asset Turnover Ratio Formula
    • Perpetuity Formula
    • Bid-Ask Spread Formula
    • Price to Book Value Formula
    • Capital Gains Yield Formula
    • Net Profit Margin Formula
    • DuPont Formula
    • Bond Pricing Formula
    • Binomial Distribution Formula
    • Sustainable Growth Rate Formula
    • Average Collection Period Formula
    • Net Income Formula
    • CAPM Formula
    • Cost of Goods Sold Formula
    • Economic Order Quantity (EOQ) Formula
    • Amortization Formula
    • Enterprise Value Formula
    • Beta Formula
    • Cost of Equity Formula
    • Rate of Return Formula
    • Revenue Formula
    • Markup Price Formula
    • Cash Flow from Operations Formula
    • Simple Interest Rate Formula
    • Consumer Surplus Formula
    • Asset to Sales Ratio Formula
    • Debt Service Coverage Ratio Formula
    • Capitalization Rate Formula
    • Cost of Debt Formula
    • Straight Line Depreciation Formula
    • Variable Costing Formula
    • Return on Invested Capital Formula
    • Profitability Index Formula
    • Expected Return Formula
    • Cost of Capital Formula
    • Price Index Formula
    • Average Total Cost Formula
    • Discount Factor Formula
    • Price Elasticity Formula
    • Profitability Ratios Formula
    • Financial Leverage Formula
    • Contribution Margin Formula
    • Time Value of Money Formula
    • Balance Sheet Formula
    • Opportunity Cost Formula
    • Current Assets Formula
    • Operating Cycle Formula
    • Operating Margin Formula
    • Bond Equivalent Yield Formula
    • Marginal Revenue Formula
    • Sales Revenue Formula
    • Net Debt Formula
    • Times Interest Earned Formula
    • Gordon Growth Model Formula
    • Required Rate of Return Formula
    • Break Even Analysis Formula
    • Inventory Formula
    • Marginal Propensity to Consume Formula
    • Debt to Asset Ratio Formula
    • Solvency Ratio Formula
    • Interest Expense Formula
    • Leverage Ratio Formula
    • Dividend Payout Ratio Formula
    • Operating Profit Margin Formula
    • PEG Ratio Formula
    • Net Interest Margin Formula
    • Return on Equity (ROE) Formula
    • Overhead Ratio Formula
    • Future Value Formula
    • Days in Inventory Formula
    • Market Capitalization Formula
    • Sharpe Ratio Formula
    • Cash Ratio Formula
    • Retained Earnings Formula
    • Average Rate of Return Formula
    • Current Liabilities Formula
    • Equity Value Formula
    • Relative Risk Reduction Formula
    • Capital Adequacy Ratio Formula
    • Debtor Days Formula
    • DPMO Formula
    • Average Formula
    • Exponential Growth Formula
    • Net Realizable Value Formula
    • Range Formula
    • Shareholders' Equity Formula
    • Sinking Fund Formula
    • Doubling Time Formula
    • Salvage Value Formula
    • Coupon Rate Formula
    • Simple Interest Formula
    • Correlation Formula
    • R - Squared Formula
    • MTBF Formula
    • Change in Net Working Capital Formula
    • Midrange Formula
    • Normal Distribution Formula
    • Mean Formula
    • Population Mean Formula
    • Median Formula
    • Central Limit Theorem Formula
    • Free Cash Flow Formula
    • Stockholder's Equity Formula
    • Acid-Test Ratio Formula
    • Percentile Rank Formula
    • Purchasing Power Parity Formula
    • Harmonic Mean Formula
    • Relative Standard Deviation Formula
    • T Distribution Formula
    • Normalization Formula
    • Operating Income Formula
    • Markup Percentage Formula
    • Relative Change Formula
    • Maturity Value Formula
    • Salary Formula
    • High Low Method
    • Income Statement Formula
    • Market to Book Ratio Formula
    • Dividends Per Share Formula
    • Daily Compound Interest Formula
    • Working Capital Turnover Ratio Formula
    • Weighted Mean Formula
    • Compounded Annual Growth Rate Formula
    • Regression Formula
    • Margin of Error Formula
    • Hypergeometric Distribution Formula
    • Standard Normal Distribution Formula
    • NOPAT Formula
    • Effective Tax Rate Formula
    • Degree of Operating Leverage Formula
    • Outliers Formula
    • Information Ratio Formula
    • Percent Error Formula
    • Hypothesis Testing Formula
    • Activity Based Costing Formula
    • Coverage Ratio Formula
    • Market Risk Premium Formula
    • Degree of Financial Leverage Formula
    • Absorption Costing Formula
    • Future Value of Annuity Due Formula
    • Internal Growth Rate Formula
    • F-Test Formula
    • Covariance Formula
    • Population Variance Formula
    • Coefficient of Determination Formula
    • Adjusted R Squared Formula
    • Compound Interest Formula
    • Gross Profit Formula
    • Accounting Equation Formula
    • Sample Size Formula
    • Sample Standard Deviation Formula
    • Quartile Formula
    • Variance Analysis Formula
    • Correlation Coefficient Formula
    • Z Score Formula
    • Variance Formula
    • Present Value Formula
    • Coefficient of Variation Formula
    • Net Asset Value Formula
    • Profit Margin Formula
    • Holding Period Return Formula
    • Capital Asset Pricing Model Formula
    • Present Value of Annuity Due Formula
    • Depreciation Expenses Formula
    • Annuity Formula
    • Taxable Income Formula
    • Profit Formula
    • Monthly Compound Interest Formula
    • Equity Formula
    • Return on Total Assets Formula
    • Alpha Formula
    • Debt to Equity Ratio Formula
    • EBITDA Formula
    • Accrued Interest Formula
    • Dividend Formula
    • Common Stock Formula
    • Mortgage Formula
    • Growth Rate Formula
    • Absolute Value Formula
  • Accounting fundamentals (700+)
  • Asset Management Tutorial (200+)
  • Banking (44+)
  • Corporate Finance Basics (373+)
  • Credit Research Fundamentals (6+)
  • Economics (88+)
  • Financial Modeling in Excel (17+)
  • Investment Banking Basics (140+)
  • Investment Banking Careers (29+)
  • Trading for dummies (69+)
  • valuation basics (27+)
  • Insurance Resources (14+)
  • Top Finance Books (7+)
Finance Blog Courses
  • Investment Banking Course
  • Investment Banking Online Course
  • Financial Modeling Certification

Beta Formula

Beta Furmula

Beta Formula (Table of Contents)

  • Beta Formula
  • Calculate Beta by Correlation Formula
  • Calculate Beta Manually
  • Calculation of Beta for the stock profile
  • Beta Calculator
  • Beta Formula in Excel (With Excel Template)

Beta Formula

Beta is the very important element in the stock analysis it measures risk in stock or in the stock portfolio. Beta is very volatile as it depends on the stock market and we know very well that the stock market is very much volatile. Beta not only evaluate the risk associated with a particular stock but also used to evaluate the expected rate on returns and Discounted cash flow evaluation. Beta is the covariance of the return of an asset divided by variance of the return of the benchmark over a certain time period and formula for this can be written as:-

Beta Formula

Where,

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

  • Re = Stock Return
  • Rm = Market Return

Covariance

Variance

Calculation of Beta by above Beta Formula-

Beta can be calculated using above beta formula by following below steps:-

  • Get past security price for an asset of the company.
  • Get past security price for comparison benchmark.
  • Calculate the percentage change periodically for both asset and benchmark.
  • Calculate variance by- VAR.S(Sum of all the percentage changes of the asset).
  • Calculate Covariance by- COVARIANCE.S(Sum of all the percentage changes of the asset, the Sum of all the percentage changes of the benchmark).
  • Divide Covariance by variance to get the Beta.

Examples

Let’s see an example to calculate Beta.

All in One Financial Analyst Bundle(250+ Courses, 40+ Projects)
Financial ModelingInvestment BankingUS GAAPCFA-Level 1 & 2
Equity ResearchM & A ModelingPrivate Equity ModelingForex Trading
Price
View Courses
250+ Online Courses | 40+ Projects | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (86,192 ratings)
You can download this Beta Formula Excel Template here – Beta Formula Excel Template

A company has below asset and benchmark price from Jan-2018 to Dec-2018.

Date Assets Price Benchmark Price Percentage of Change in Asset Percentage of Change in Benchmark
1-Jan-18 232 1274 0.92 0.15
1-Feb-18 446 1460 -0.34 -0.24
1-Mar-18 294 1110 0.09 0.24
1-Apr-18 321 1376 1.27 -0.04
1-Jun-18 730 1316 -0.11 -0.01
1-Jul-18 648 1300 0.08 0.04
1-Aug-18 703 1351 0.04 0.03
1-Sep-18 728 1396 -0.05 0.03
1-Oct-18 689 1440 -0.68 -0.2
1-Nov-18 220 1148 1.71 0.09
1-Dec-18 597 1247 -1 -1

Then calculate the percentage of change in asset and percentage of change in the benchmark.

Variance is Calculated as:

Beta Example 1-1

Covariance is calculated as:

Beta Example 1-2

Beta is calculated as:

Beta Example 1-3

So, the value of Beta is 0.24 which company is less volatile than the market.

Calculate Beta by Correlation Formula

Beta formula in term of correlation can be written as:-

Beta correlation

Where,

  • σe= Standard deviation of returns of the benchmark
  • σm = Standard deviation of returns of asset

Above formula is used to calculate Beta by dividing the standard deviation of returns of the asset by standard deviation of returns of benchmark which is multiply by correlation of asset return and benchmark return.

Now, let us calculate Beta by correlation formula.

Suppose an investor wants to invest in a company, he wants to calculate Beta of the company and compare it with S&P 500 EFT Trust correlation between two is 0.62, the standard deviation of returns of the company is 22% and standard deviation of returns of S&P is 30%.

  • Beta = Correlation(Ra – Rm) *( σe / σm)
  • Beta = 0.62 * (0.22 / 0.30)
  • Beta= 0.45

So, the value of Beta is 0.45 which company is less volatile than the market.

Calculate Beta Manually

Beta can be calculated manually by following below steps:-

  • Find the risk free rate-

It is the rate of return on investment done.

  • Find the rate of return of stocks and rate of return on market-

If any of the value is in negative that will leads to a value of beta as negative which means loss.

  • Find return on risk is taken on stock-

It is the stock’s rate of return minus risk free rate.

  • Find return on risk is taken on the market-

It is the market’s rate of return minus risk free rate.

  • Divide return on risk is taken on the stock by return on risk taken on the market-

This will provide you value for Beta.

Let us an example to calculate Beta manually,

A company gave risk free return of 5%, the stock rate of return is 10% and the market rate of return is 12% now we will calculate Beta for same.

Return on risk taken on stocks is calculated using below formula

  • Return on risk taken on stocks = Stock Rate of Return – Risk Free Return
  • Return on risk taken on stocks = 10% – 5%
  • Return on risk taken on stocks = 5%

Return on risk taken on Market is calculated using below formula

  • Return on risk taken on Market = Market Rate of Return – Risk Free Return
  • Return on risk taken on Market = 12% – 5%
  • Return on risk taken on Market = 7%

Beta is Calculated using below formula

  • Beta = Return on risk taken on stocks/ Return on risk taken on Market
  • Beta = 5 /7
  • Beta = 0.71

So, value for beta is 0.71 which company is less volatile than the market.

Calculation of Beta for the stock profile

Now, let us see a calculation of Beta for the stock profile.

Beta is calculated for stock and for a stock portfolio value of each stock Beta is added up according to their weights to create the portfolio beta. The formula for same is as follows:-

The beta of Portfolio = Weight of Stock * Beta of Stock + Weight of Stock * Beta of Stock…so on

Let us see an example to calculate the same.

An investor has a portfolio of $100,000, the market value of HCL is $40,000 with a Beta value of HCL is 1.20, and market value of Facebook is $60,000 with Beta value is 1.50. The beta of the portfolio will be:-

Weight of HCL is calculated as:

  • Weight of HCL = 40,000 / 100,000
  • Weight of HCL = 0.40

Weight of Facebook is calculated as:

  • Weight of Facebook = 60,000 / 100,000
  • Weight of Facebook = 0.60

Beta of Portfolio is calculated as:

The beta of Portfolio = Weight of Stock * Beta of Stock + Weight of Stock * Beta of Stock…so on

  • Beta of Portfolio = (0.40*1.20) + (0.60*1.50)
  • Beta of Portfolio = 0.48 + 0.9
  • Beta of Portfolio = 1.38

The beta of the portfolio is 1.38, which means the stock is highly risky and volatile.

Beta Measurement and its Relation with Market

Value of Beta defines the risk associated with the company, Beta tells whether investment in the company is risky or not and how much it is depended on the market. Beta measures the stock rise in relation to the stock market. Beta value and its interpretation are as follows:-

  • If Beta = 1, then risk in stock will be the same as a risk in the stock market. It means the stock is volatile like the stock market.
  • If Beta >1, then the level of risk is high and highly volatile as compared to the stock market.
  • If Beta > 0 and Beta < 1, then the stock price will move with the market. However, the stock price will be less risky and less volatile.

Uses of Beta Formula

There are many uses of Beta and its formula and they are as follows:-

  • It helps in risk analysis of the stock.
  • Beta helps to calculate rate on returns.
  • It also helps in the evaluation of discounted cash flow.
  • Beta provides a real picture of the investment portfolio.

Beta has some disadvantages as it depended on past performance but in reality past performance has no guarantee of future and it cannot give an accurate value. But, still, Beta is highly used by investment bankers and investors to calculate risk.

Beta Calculator

You can use the following Beta Calculator

Covariance
Variance
Beta Formula
 

Beta Formula =
Covariance =
Variance
0 = 0
0

Beta Formula in Excel (With Excel Template)

Here we will do the same example of the Beta formula in Excel. It is very easy and simple.

You can easily calculate the Beta using Formula in the template provided.

Beta using the correlation formula is calculated as:

Calculation of Beta formula

Return on risk taken on stocks is calculated as:

Calculation of Return on risk

Return on risk taken on Market is calculated as:

Return on risk taken on Market

Beta is Calculated using below formula

Beta Example 3-3

Weight of HCL is calculated as:

Calculation of Weight of HCL

Weight of Facebook is calculated as:

Calculation of Weight of Facebook

Beta of Portfolio is calculated as:

Beta Example 4-3

Recommended Articles

This has been a guide to a Beta formula. Here we discuss its uses along with practical examples. We also provide you Beta Calculator with downloadable excel template. You may also look at the following articles to learn more –

  1. Formula for Quick Ratio
  2. Formula for Overhead Ratio
  3. How to Calculate Net Interest Margin?
  4. DuPont Formula with Excel Template
  5. How to Calculate Risk Free Rate Formula?
Popular Course in this category
All in One Financial Analyst Bundle- 250+ Courses, 40+ Projects
  250+ Online Courses |  1000+ Hours |  Verifiable Certificates |  Lifetime Access
4.9
Price

View Course

Related Courses

Investment Banking Course (123 Courses, 25+ Projects)4.9
Investment Banking Course (123 Courses, 25+ Projects)4.8
Financial Modeling Course (7 Courses, 14 Projects)4.7
0 Shares
Share
Tweet
Share
Primary Sidebar
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

ISO 10004:2018 & ISO 9001:2015 Certified

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Financial Modeling Course

3 Statement Model Creation, Revenue Forecasting, Supporting Schedule Building, & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

Download Beta Formula Excel Template

EDUCBA

डाउनलोड Beta Formula Excel Template

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more