Stock Beta & Risk Calculator

How to calculate Stock Beta?

Stock Beta is a measure of a security's or portfolio's volatility—or systematic risk—in comparison to the entire market or a specific benchmark, such as the S&P 500 index. It helps investors understand how much a stock's price is likely to move in relation to broader market fluctuations.

Formula: Beta = Covariance(Rs, Rm) / Variance(Rm)

Using the Beta calculator: an example

Consider a scenario involving a high-growth tech stock. To understand its risk profile, you would compare its historical returns against those of the S&P 500. If the index grows by 10% and the stock grows by 15%, the calculator helps you quantify that higher sensitivity.

Step-by-step calculation:

• Identify stock and market returns: Collect historical price data for both the stock and the benchmark over a specific period (e.g., 3-5 years).
• Calculate covariance and variance: Compute the covariance of the stock's returns relative to the market and the variance of the market's returns.
• Divide: Divide the covariance by the variance to find the final Beta coefficient.

Frequently Asked Questions

What does a Beta of 1.0 mean?
A Beta of 1.0 indicates that the stock's price moves exactly in line with the market benchmark.

What is a defensive stock?
A defensive stock has a Beta less than 1.0, meaning it is less volatile than the market and typically more stable during downturns.

Can Beta be negative?
Yes, a negative Beta means the stock moves inversely to the market—rising when the market falls and vice versa.