Why we need to have 3 formula to calculate beta of a stock?
1 Answer(s)
Satya
Hi,
The basic formula to calculate the stock beta is:
Beta = Co-variance(SENSEX, Stock)/ Variance(SENSEX). Another formula to calculate beta is for a portfolio, a mix of various stocks:
Wi*Bi or W1*B1+W2*B2+W3*B3.....where Wi is the weightage of the stock in the portfolio.
Also, there is a relationship which is derived from CAPM, which is:
Rs = Rf + Bs (Rm - Rf), where: Rs = return on security; Rf = risk-free return; Bs = beta; Rm = market return. Given the different scenario and data, we need to calculate beta accordingly. Do get back for more clarifications.
Jan 18 2013 12:41 AM
The basic formula to calculate the stock beta is:
Beta = Co-variance(SENSEX, Stock)/ Variance(SENSEX). Another formula to calculate beta is for a portfolio, a mix of various stocks:
Wi*Bi or W1*B1+W2*B2+W3*B3.....where Wi is the weightage of the stock in the portfolio.
Also, there is a relationship which is derived from CAPM, which is:
Rs = Rf + Bs (Rm - Rf), where: Rs = return on security; Rf = risk-free return; Bs = beta; Rm = market return. Given the different scenario and data, we need to calculate beta accordingly. Do get back for more clarifications.