The market has a beta of 1.0, so an asset or portfolio with a high beta (greater than 1.0) is more volatile than the market, while it would be less volatile if the beta of a stock is under 1.0. Low-beta stocks are only weakly correlated to the market. Portfolio beta shows how clos...
Portfolio beta is a measure of the overall systematic risk of a portfolio of investments. It equals the weighted-average of the beta coefficient of all the individual stocks in a portfolio. While variance and standard deviation of a portfolio are calculated using a complex formula which includes ...
Beta Value Less Than One A beta value below 1.0 means that a security is less volatile than the market, making it a less risky addition to a portfolio. For instance, utility stocks often have low betas because they have a more stable value and move more slowly than market averages. Inclu...
The alpha calculation formula can be used first by calculating the expected rate of return of the portfolio based on the risk-free rate of return, a beta of the portfolio, and market risk premium, then deducting the result from the actual rate of return of the portfolio. Alpha of portfolio...
Beta (β) measures the sensitivity of a security or portfolio of securities to systematic risk (i.e. volatility) relative to the broader securities market. Levered and Unlevered Beta are two different types of beta (β), in which the distinction is around the inclusion (or removal) of debt...
Portfolio beta can be estimated as the weighted-average of beta coefficients of individual stocks.AnalysisThe market has a beta coefficient of 1 and beta coefficients of different stocks are measured with reference to the market. A beta coefficient below 1 means that the stock has a systematic ...
The expected rate of return of theportfolio can be calculatedusing the risk-free rate of return, market risk premium and beta of the portfolio as shown below. Expected Rate of Return = Risk-Free Rate + β * Market Risk Premium Therefore, the formula for alpha can be expanded as, ...
A zero-beta portfolio is a portfolio constructed to have zero systematic risk, or in other words, a beta of zero. A zero-beta portfolio would have the same expected return as the risk-free rate. Such a portfolio would have zero correlation with market movements, given that its expected ret...
Risk in the Treynor ratio refers to systematic risk as measured by a portfolio'sbeta. Beta measures the tendency of a portfolio's return to change in response to changes in return for the overall market. Key Takeaways The Treynor ratio is a risk/return measure that allows investors to adjus...
Portfolio Beta: portfolio w j j j 1 n (6.8) (7.1) CAPM Equation: Bond Value (for Annual Interest Payments): k j k rf j k m k rf Vb t 1 n Coupon Par Value Coupon 1 Par Value ...