Beta Calculator
Our Beta Calculator is designed for financial professionals and investors to assess the risk associated with a particular investment compared to the market. This tool helps in understanding how sensitive a stock or portfolio is to market movements.
Interactive Calculator
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Data Source and Methodology
All calculations are based on standard financial analysis methodologies. Ensure accuracy by consulting official market data sources.
The Formula Explained
The beta of a stock is calculated using the formula:
Beta = Covariance(Stock, Market) / Variance(Market)
Glossary of Terms
- Covariance: A measure of how two variables change together.
- Variance: A measure of the dispersion of returns for a given security or market index.
- Beta: A measure of a stock's volatility in relation to the market.
How It Works: A Step-by-Step Example
For instance, if the covariance between a stock and the market is 0.03 and the market variance is 0.01, the beta would be:
Beta = 0.03 / 0.01 = 3.0
Frequently Asked Questions (FAQ)
What is a Beta Calculator?
A beta calculator is a tool used to measure the volatility or systematic risk of a financial security or portfolio compared to the market as a whole.
How do I interpret a beta value?
A beta greater than 1 indicates the security is more volatile than the market, while a beta less than 1 indicates it is less volatile.
Why is beta important?
Investors use beta to understand a stock's market risk compared to the overall market, aiding portfolio diversification strategies.
What is the covariance in finance?
Covariance is a statistical measure of the directional relationship between the returns on two assets.
Can beta be negative?
Yes, a negative beta indicates an inverse relationship with the market.