What is the beta of the following portfolio? (2024)

How do you calculate the beta of a portfolio?

The formula for the beta of an individual stock within a portfolio takes the covariance divided by the variance. Investors can also find the correlation between the market index standard, multiply it by the stock's standard deviation and divide it by the market index's standard deviation.

What is the beta of a stock portfolio?

Portfolio beta is the measure of an entire portfolio's sensitivity to market changes while stock beta is just a snapshot of an individual stock's volatility. Since a portfolio is a collection of multiple stock holdings the formulas used to calculate beta for each will look different.

What is the beta of the market portfolio quizlet?

The beta is the expected percentage change in the excess return of a security for a 1% change in the excess return of the market portfolio. The correct answer is: The beta is the expected percentage change in the excess return of the market portfolio for a 1% change in the excess return of a security.

How do you calculate the beta of a stock?

A stock's beta is equal to the covariance of the stock's returns and its benchmark index's returns over a particular time period, divided by the variance of the index's returns over that period. As a formula, β = covariance(stock returns, index returns) / variance(index returns).

How do you calculate a portfolio beta quizlet?

How do you calculate a portfolio beta? Multiply weight of return times beta, add all together. Consider a portfolio made up of Asset A and a risk-free asset.

How to calculate beta CAPM calculator?

To calculate a CAPM beta, subtract the expected market return from the expected investment return, then divide by the result of the market return minus the risk-free return.

How do I calculate the beta of a portfolio in Excel?

You can calculate portfolio beta on Excel using the “SUMPRODUCT” function. Excel's “SUMPRODUCT” essentially takes the sum of multiple products (being the value of 2 numbers multiplied by one another).

Is the beta of a portfolio always 1?

Investors always measure a portfolio's Beta against a benchmark index, which they give a value of 1. Stocks that have a Beta higher than one are more volatile than the overall market, and those with a Beta of less than one are less volatile than the overall market.

How do you calculate portfolio value?

Finding your portfolio value involves first calculating the monetary value of each individual asset, then adding all of those values together. The number you get is your portfolio value.

What is the beta of a 2 stock portfolio?

What is portfolio beta? A portfolio beta is nothing but the weighted sum of the individual asset betas. If your portfolio consists of two stocks and half of your money is in Stock X with a beta of 2.00 and the remaining in Stock Y with a beta of 1.00, your portfolio beta is 1.50.

What is the beta of the market ________?

Beta is a measure of a stock's volatility in relation to the overall market. By definition, the market, such as the S&P 500 Index, has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0.

What is beta quizlet?

Tap the card to flip 👆 A) Beta. Beta is a measure of a portfolio's volatility compared to the volatility of the overall market. Since systematic risk is risk associated with investing in the market, lowering the client's volatility (beta) relative to that of the market should lower his exposure to market risk.

How is beta measured?

The beta coefficient is calculated by dividing the covariance of the stock return versus the market return by the variance of the market. Beta is used in the calculation of the capital asset pricing model (CAPM). This model calculates the required return for an asset versus its risk.

Is beta calculated in percentage?

Beta is a statistical measure of the variability of a company's stock price in relation to the stock market overall. It is calculated by regressing the percentage change in a stock or portfolio against the percentage change in the market (usually as defined by an index like the SENSEX/NIFTY).

How do you find the alpha and beta of a stock?

What is the beta in the CAPM?

Beta (β), primarily used in the capital asset pricing model (CAPM), is a measure of the volatility–or systematic risk–of a security or portfolio compared to the market as a whole.

What is CAPM calculator?

The CAPM calculator (capital asset pricing model) aims to determine the expected return of a particular asset or investment.

What is the range of beta in CAPM?

Most stocks have betas than range from 0.5 − 1.75. Some stocks have a negative beta because they have a negative correlation to the general market — they move in the opposite direction to the general market.

What is beta in Excel?

Beta is a measure of how sensitive a firm's stock price is to an index or benchmark. A beta greater than 1 indicates that the firm's stock price is more volatile than the market, and a beta less than 1 indicates that the firm's stock price is less volatile than the market.

What is the beta of a portfolio example?

The beta of a portfolio is the weighted sum of the individual asset betas, According to the proportions of the investments in the portfolio. E.g., if 50% of the money is in stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00,the portfolio beta is 1.50.

Why is beta 1 in CAPM?

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. The beta coefficient can be interpreted as follows: β =1 exactly as volatile as the market.

What does a portfolio beta of 1 mean?

A beta of 1 indicates that the security's price tends to move with the market. A beta greater than 1 indicates that the security's price tends to be more volatile than the market. A beta of less than 1 means it tends to be less volatile than the market.

What is the formula for portfolio return?

The expected return is calculated by multiplying the weight of each asset by its expected return. Then add the values for each investment to get the total expected return for your portfolio. Hence, the formula: Expected Portfolio Return = (Asset 1 Weight x Expected Return) + (Asset 2 Weight x Expected Return)...

What is CAPM formula for portfolio?

To calculate the expected return on assets, you must utilize the CAPM formula: Expected return = risk-free rate + volatility/beta * (market return - risk-free rate).

How do you calculate expected return from beta?

Expected return = Risk Free Rate + [Beta x Market Return Premium]

What does a beta of 1.5 mean for a stock?

Roughly speaking, a security with a beta of 1.5, will have move, on average, 1.5 times the market return. [More precisely, that stock's excess return (over and above a short-term money market rate) is expected to move 1.5 times the market excess return).]

When a stock has a beta of 1.5 the expected return?

Answer and Explanation: Hence, the expected return when the beta of the stock is 1.5 will be 18%, and the expected return when the beta of the stock is 1.27 will be 16.02%.

What does a 2.5 beta mean?

A beta of greater than 1.0 indicates that the fund is more volatile than the market, and less than 1.0 is less volatile than the market. For example, if the market rises 1% and a fund has a beta greater than 2.5, the fund will rise, on average, 2.5%.

Why is beta important in a portfolio?

Beta forms the core of the CAPM, which is used to calculate the cost of equity, which is an important input for valuation of a stock. Higher the Beta higher is the compensation that investors will expect from the stock and vice versa.

Which stock has highest beta?

What is beta a measure of a stock quizlet?

Beta is a measure of market risk and is useful in the context of a well-diversified portfolio. Beta measures the sensitivity of the security returns to changes in market returns. The market portfolio has a beta of one and thus has average risk.

What means in beta?

: a nearly complete prototype of a product (such as software) the beta version. also : a stage of development in which a product is nearly complete but not yet ready for release. The app is still in beta.

What makes a beta?

Betas are the alpha's closest confidantes. They're the men he trusts the most to get things done. In return, the alpha makes sure that the betas enjoy the status, power, and prestige that comes hand-in-hand with their responsibilities. This helps the alpha to establish loyalty with his beta lieutenants.

What is a beta sheet quizlet?

Definition. Beta sheets consist of beta strands (also β-strand) connected laterally by at least two or three backbone hydrogen bonds, forming a generally twisted, pleated sheet. A β-strand is a stretch of polypeptide chain typically 3 to 10 amino acids long with backbone in an extended conformation.

What is beta value range?

Beta values can range from less than 1 to greater than 1. Meanwhile, the market's beta is generally considered to be 1.

Is a beta of 1 high?

A beta of 1 indicates that a stock's volatility is in line with the overall market. This can be seen as a neutral or average level of risk. Stocks with betas less than 1 are generally considered less risky than the market, while stocks with betas greater than 1 are generally considered more risky.

What is a beta of 70%?

The magnitude of the portfolio's expected move is measured relative to the market's beta, which is set at +1.0. For example, a portfolio with an overall beta of +0.7 would be expected to earn 70% of the market's return under normal circ*mstances.

Is beta calculated daily?

Betas determined on the basis of daily, weekly or yearly rates of return differ even when they are calculated for the same period of time. This phenomenon is known as intervaling effect in the literature. Some researchers have focused on this phenomenon.

What is the 5 year beta of a stock?

Definition of Beta (5 Year)

Beta measures the risk or volatility of a company's share price in comparison to the market as a whole. For example, a company with a beta of 1.1 will theoretically see its stock price increase by 1.1% for every 1% increase in the market.

What is portfolio alpha and beta?

Alpha and beta are two different parts of an equation used to explain the performance of stocks and investment funds. Beta is a measure of volatility relative to a benchmark, such as the S&P 500. Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations.

How do you calculate alpha in a portfolio?

Alpha is calculated by finding the difference between expected returns and actual returns. The alpha formula derives from the Capital Asset Pricing Model (CAPM), with the CAPM formula for alpha reading as Alpha= r - Rf - beta(Rm - Rf).

What makes a stock high beta?

A stock that moves more than the market over time has a beta greater than 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks tend to be riskier but provide the potential for higher returns. Low-beta stocks pose less risk but typically yield lower returns.

What is beta and how is it calculated?

Beta effectively describes the activity of a security's returns as it responds to swings in the market. A security's beta is calculated by dividing the product of the covariance of the security's returns and the market's returns by the variance of the market's returns over a specified period.

How do you calculate beta of a portfolio in Excel?

How do you calculate alpha and beta of a portfolio?

How do you calculate portfolio weights with beta and expected return?

Multiply each stock's fractional share by its Beta. This will calculate the stock's weighted beta: Stock ABB's beta of 1.2 X its fractional portfolio of 0.125 = 0.15.

What is beta value?

Definition: Beta is a numeric value that measures the fluctuations of a stock to changes in the overall stock market. Description: Beta measures the responsiveness of a stock's price to changes in the overall stock market.

What is beta in CAPM?

Beta is the standard CAPM measure of systematic risk. It gauges the tendency of the return of a security to move in parallel with the return of the stock market as a whole. One way to think of beta is as a gauge of a security's volatility relative to the market's volatility.

What is the beta function in Excel?

Returns the beta distribution. The beta distribution is commonly used to study variation in the percentage of something across samples, such as the fraction of the day people spend watching television.

What is the formula for alpha and beta?

alpha + beta = b/a.

What is a portfolio with example?

A portfolio is a collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and exchange traded funds (ETFs). People generally believe that stocks, bonds, and cash comprise the core of a portfolio.

How do you calculate portfolio Alpha?

The alpha formula derives from the Capital Asset Pricing Model (CAPM), with the CAPM formula for alpha reading as Alpha= r - Rf - beta(Rm - Rf). Alpha can be positive or negative. Beta, the volatility of a stock in comparison to the overall market, is part of the formula to calculate an investment's expected returns.