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Continue reading → The post How to Calculate the Beta of a Portfolio appeared first on SmartAsset Blog. Investors, whether beginner or seasoned professionals, all have a threshold for risk. Some ...
How to calculate beta Beta is calculated by taking the covariance between the return of an asset and the return of the market and dividing it by the variance of the market.
In finance, the beta (β or market beta or beta coefficient) is a statistic that measures the expected increase or decrease of an individual stock price in proportion to movements of the stock market as a whole. Beta can be used to indicate the contribution of an individual asset to the market risk of a portfolio when it is added in small quantity.
To calculate beta, investors divide the covariance of an individual stock (say, Apple) with the overall market, often represented by the Standard & Poor’s 500 Index, by the variance of the ...
Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversification in investing, the idea that owning different kinds of financial assets is less risky than owning ...
With this equation, only the betas of the individual securities and the market variance need to be estimated to calculate covariance. Hence, the index model greatly reduces the number of calculations that would otherwise have to be made to model a large portfolio of thousands of securities.
The beta (β) of a stock or portfolio is a number describing the volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices , such as the S&P 500 .
Beta measures how volatile a stock is in relation to the broader stock market over time. A stock with a high beta indicates it's more volatile than the overall market and can react with dramatic ...