Skip to main content
Library homepage
 

Text Color

Text Size

 

Margin Size

 

Font Type

Enable Dyslexic Font
Business LibreTexts

7.6: Beta

( \newcommand{\kernel}{\mathrm{null}\,}\)

In addition to serving as a measure of market risk, Beta tells us how a particular stock moves in relation to the rest of the stock market as a whole.
βA=(σA)(corrA,MKT)σMKT

where

βA represents the Beta of Stock A
σA represents the standard deviation of stock A
corr A,MKT represents the correlation between stock A and the overall market σMKT  represents the standard deviation of the overall market

Consider the following example. Stock A has a standard deviation of 60% while the overall stock market has a standard deviation of 25%. Assuming that the correlation between Stock A and the overall market is 0.30 , what is the beta of Stock A?
 Beta =[(60)(.30)]/(25)=18/25=.72

What is the Market?

The market refers to a portfolio of all investment assets (stocks, bonds, gold , art, etc.). However, in more practical terms, the market usually refers to the stock market and can be measured by a market index (such as the S&P 500 or Dow Jones Industrial Average).


7.6: Beta is shared under a not declared license and was authored, remixed, and/or curated by LibreTexts.

Support Center

How can we help?