For example, let us say an investor bought shares of Stock OW. This stock has a beta of 1.5, which is 50% more volatile than the market. However, this also means it could earn 50% more than the market can return in a given period. One year later, Stock OW gained an annual return...
Calculate the Expected Return using the following formula in cell G8: =G4+G6*(D15-G4) Explanation: Expected Return = (Risk-free rate + Beta * (Average market returns of the benchmark – Risk-free rate)) Step 5 – Calculate Jensen’s Alpha Compute Alpha using the following formula ...
the correlation of its returns with the returns of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index. Definition The formula for the beta of an asset within a portfolio is Where a measures th...
For those investors seeking high Beta, stocks with values in excess of 1.3 would be the ones to seek out. These securities would offer investors at least 1.3X the market’s returns for any given period. Here’s a look at the formula to compute Beta: ...
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A stock has a beta of 1.13, the expected return on the market is 10.7% and risk-free rate is 4.6%. What is the expected return? CAPM: CAPM stands for the capital asset pricing model. This approach helps to determine the required rat...
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Beta Calculation Formula Explained The formula to calculate beta is:Beta = Covariance (Stock Returns, Market Returns) / Variance (Market Returns)To use this formula, you need to have historical returns data for the stock and the market. The covariance measures the extent to which the returns of...
Simply put, beta (ß) is a measure of market risk. More precisely, it is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. In statistical terms, it is the slope of the coefficient for a security (stock) regressed against a...
Beta=CRVariance of Market’s Returnwhere:CR=Covariance of asset’s return with market’s returnBeta=Variance of Market’s ReturnCRwhere:CR=Covariance of asset’s return with market’s return In this formula, covariance is used to measure the correlation in price moves of any two ...