What is the formula for beta?

The formula for beta is: Beta = Covariance (Return of the security, Return of the market) / Variance (Return of the market) Understanding beta is critical for investors as it helps them gauge the risk associated with a particular investment. A high beta indicates that the stock is riskier but could potentially offer higher returns.

How do you calculate beta of a stock?

This value represents Alpha, or the additional return expected from the stock when the market return is zero. To calculate the Beta of a stock or portfolio, divide the covariance of the excess asset returns and excess market returns by the variance of the excess market returns over the risk-free rate of return:

What is beta in finance?

The beta (β) of an investment security (i.e., a stock) is a measurement of its volatility of returns relative to the entire market. It is used as a measure of risk and is an integral part of the Capital Asset Pricing Model (CAPM). A company with a higher beta has greater risk and also greater expected returns.