How to use this Beta Calculator

The Beta coefficient for a firm or security is a measure of risk of that firm with respect to the market. Large betas (larger than 1), indicate more risk, and low betas (lower than 1) indicate less risk relative to the market.

How do you compute the Beta of a company

First, we need to have two samples of the same size: The returns for a company, and the returns of the market for the same period of time. Note: You need to provide the returns and NOT the actual stock values in order for the calculations to be correct.

Then, a linear regression is conducted and the estimated slope of the regression model using the returns of the company as the dependent variable and the returns of the market as the independent variable will be the beta we are looking for.

Alternative formulas to compute the beta

The actual definition of beta is :

\[ beta = \displaystyle \frac{cov(r_s, r_M)}{var(r_M)}\]

This formula is less clear for many people because the covariance is a less understood measure and some people do not know how to compute it.

Ultimately, the calculation of the beta as a slope coefficient of the regression between company and market returns has a stronger intuitive appeal.

Beta Calculator Excel

Calculation beta in Excel is easy. You need to go to a provider of historical prices, such as Yahoo finance. Then you clean all you need to clean and leave only adjusted prices.

Your market data could be the S&P; 500 or any other market proxy. Then, by subtracting and dividing by the base value, you will get the returns, for both your company and the market.

Then, you will run a regression with the company returns as the dependent variable, and the market returns as the independent variable.

Finally, you will examine your regression output, and select the estimated slope coefficient. That will be the beta you are looking for.

Beta calculator and the CAPM

Why is it useful to compute the beta of a firm? Because it gives a measure of how risky the firm's stock is with respect to the market, and it tells us how much should be our expected return based ion that level of risk, via de CAPM model.

Beta of a portfolio

One of the most interesting application of beta, as a measure of risk is the calculation of the beta of a portfolio, in order to quantity its risk. The good thing is that it is quite easy to find the beta of the portfolio based upon the betas of each of the individual components of the portfolio and their weights.