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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 ...
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.
Beta measures the contribution of an individual investment to the risk of the market portfolio that was not reduced by diversification. It does not measure the risk when an investment is held on a stand-alone basis. The beta of an asset is compared to the market as a whole, usually the S&P 500.
β, Beta, is the measure of asset sensitivity to a movement in the overall market; Beta is usually found via regression on historical data. Betas exceeding one signify more than average "riskiness" in the sense of the asset's contribution to overall portfolio risk; betas below one indicate a lower than average risk contribution.
An estimation of the CAPM and the security market line (purple) for the Dow Jones Industrial Average over 3 years for monthly data.. In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.
Continue reading → The post How to Calculate the Beta of a Portfolio appeared first on SmartAsset Blog. ... Some prefer to play it safe and favor a low-risk investment plan while others are more ...
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