The Beta Coefficient measures the systematic risk of a security. It is used to illustrate the relative volatility of a security (or portfolio) in comparison with the market as a whole.

By definition, the market itself has an underlying beta of 1.0, and individual stocks are ranked according to how much they deviate from the macro market (for simplicity purposes, the S&P 500 is usually used as a proxy for the market as a whole). A stock that swings more than the market (i.e. more volatile) over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0.

More specifically, a stock that has a beta of 2 follows the market in an overall decline or growth, but does so by a factor of 2; meaning when the market has an overall decline of 3% a stock with a beta of 2 will fall 6%. (Betas can also be negative, meaning the stock moves in the opposite direction of the market: a stock with a beta of -3 would decline 9% when the market goes up 3% and conversely would climb 9% if the market fell by 3%.)

Higher-beta stocks mean greater volatility and are therefore considered to be riskier, but are in turn supposed to provide a potential for higher returns; low-beta stocks pose less risk but also lower returns. In the same way a stock's beta shows its relation to market shifts, it also is used as an indicator for required returns on investment(ROI). If the market with a beta of 1 has an expected return increase of 8%, a stock with a beta of 1.5 should increase return by 12%.

  

Calculation:

                 r_s = Realized return

                 r_rf = Risk-free rate of return

               Cov = Covariance of the security and risk-free asset

               Var = Covariance of the risk-free asset

 

Inputs:

Security = XU030

Reference Security = XU100

   Indicates risk-free asset.

Start Day = First day of the date range

End Day = Last day of the date range

Currency

Period = Daily/Weekly/Monthly 

Beta Type = All/Upside/Downside

Indicator Type: Relation