Beta
- Beta is a statistical measure which captures the relationship between the returns of a security and the returns of the overall market.
- Beta is calculated as the covariance between the security’s excess returns and the excess returns of the market portfolio divided by the market portfolio variance.
Βeta Coefficient of Stock
- Beta = Cov(rs, rm) / σ2m
- Beta = Covar(rs - rm) / Var (rm)
- rs = Return of Stock
- rm = Return of Market
- σ2m = Market Variance
- σ2m = Var (rm)
- The Capital Asset Pricing Model (CAPM), developed by William F. Sharpe and John Lintner, uses the Beta of a particular security, the risk-free rate of return, and the market return to calculate the required return of an investment to its expected risk.
- Required Return = Risk-Free Rate + Risk Premium
- Required Return = Risk-Free Rate + [Beta × (Market Return – Risk-Free Rate)]
- http://www.calculatinginvestor.com/2011/04/03/tutorial-the-capital-asset-pricing-model/
- The web application is built for BDAX by David Kim