Beta Calculator

Beta measures a stock's volatility relative to the overall market. Beta of 1.0 means the stock moves with the market. Beta > 1 means more volatile (aggressive), beta < 1 means less volatile (defensive). For example, a beta of 1.5 means the stock typically moves 50% more than the market.

It depends on your risk tolerance and investment goals. Conservative investors prefer beta < 1 (defensive stocks like utilities). Aggressive investors may seek beta > 1 (tech stocks). Beta of 0.5-0.8 suits moderate risk. Beta > 1.5 indicates high volatility and risk.

Beta = Covariance(Stock, Market) / Variance(Market), or Beta = Correlation * (Stock Std Dev / Market Std Dev). It's typically calculated using 2-5 years of historical monthly returns against a market index like S&P 500.

Negative beta means the stock moves opposite to the market. When the market goes up, the stock tends to go down, and vice versa. Gold stocks and some bonds occasionally have negative beta, serving as portfolio hedges. Negative beta is rare in stocks.

Standard deviation measures total volatility (risk) of a stock. Beta measures only systematic risk (market-related). A stock can have high standard deviation but low beta if its volatility is mostly company-specific (unsystematic risk). Beta shows how much market moves affect the stock.

High beta stocks (Î^2 > 1.2): Tech, small-caps, growth stocks - more volatile, higher potential returns and losses. Low beta stocks (Î^2 < 0.8): Utilities, consumer staples, large stable companies - less volatile, steadier returns. Example: Tech stock Î^2=1.8, Utility Î^2=0.5.

No, beta measures historical volatility, not returns. It shows risk level, not profit potential. High beta stocks don't necessarily have higher returns - they just move more. Use beta for risk assessment and portfolio construction, not return prediction.

Portfolio beta = weighted average of individual stock betas. Target beta < 1 for defensive portfolios, > 1 for aggressive. Example: 60% stock A (Î^2=1.5) + 40% stock B (Î^2=0.5) = portfolio Î^2 = 1.1. Adjust allocations to reach desired risk level.

Levered beta includes company debt effects on volatility. Unlevered beta (asset beta) removes debt impact, showing business risk only. Formula: Unlevered Î^2 = Levered Î^2 / [1 + (1-Tax Rate) * (Debt/Equity)]. Use unlevered beta to compare companies with different capital structures.