Beta value, Financial Management

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Beta Value

Risk is an important consideration while investing in any security. It is the possibility that realised returns will be less than the returns expected. The degree, to which different portfolios are affected by 'risk' as compared to the effect on the market as a whole, varies and is measured and calculated by 'Beta'. The Beta factor explains the movement in a stock's or a portfolio's returns in relation to that of the market returns.

 

Beta is given by:   

 

Beta        =      {Covariance (X, Y) / Variance (X)}

 

Where,           

'Y' is the returns on the security,

'X' is the market returns or index,

'Covariance' is a measure of how the two variables 'co-vary', and

'Variance' is the square of standard deviation.


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