I need to calculate beta of the company's stock?

Question

eg: returns for co. are -5%, 5%, 8%, 15% and 10% over 5 years.

the returns for stock exchange are -12%, 1%, 6% 10% and 5% for the same 5 years.

How to compute the beta of the company's stock?

Answer 1

Bete is measure of Risk.

Year 1 Beta = -5/12 = 0.42

Year 2 Beta = 5/1 = 5

Year 3 Beta = 8/6 = 1.33

Year 4 Beta =10/10 = 1

Year 5 Beta = 10/5 = 2

Overall Beta for five Year = -5+5+8+15+10/(-12+1+6+10+5)

= 3.3

It means , when Index moves @ 1% the Company Share will move by 3.3%

The more the Bete , the more the Risk. also Return.

So be carefull in investing in Companies having high Beta.

Understood ?

Thanks

Anil.P Embranthiri, CA Final , India, Kerala

Answer 2

Hi

The beta to the stock is simply the way in which a stock will reflect towards the movement of the overall Index if the Index moves at 90% below its market value at open a stock will generally move 70/80 percent in that direction.

Peter Matty