SLOPE Function Formula, Examples, How to Use to Calculate Beta

beta calculation in excel

This is because stocks with a higher beta tend to be more volatile and thus have the potential for greater returns — but also greater losses. Whereas stocks with a lower beta are less volatile and thus have the potential for smaller returns — but also smaller losses. If something has a beta of 1, then it’s often assumed that asset will go up or down exactly as much as the market. If something has a beta of 1, then it really means that, given a change in the benchmark, its sensitivity of returns is equal to that of the benchmark.

  • You can find this on financial websites or using a tool like Wisesheets.
  • In an economy that’s decreasing, gold, bankruptcy advisory firms and companies involved in continuing education often have a beta of less than zero.
  • Copy the values in the column named Date (cells A2 to A45) and paste them into the cells A4 to A47 of beta.xlsx.

If the beta of the stock is greater than 1, this means the stock’s prices are more volatile than the market, and vice verse. For example, if a stock has a beta of 1.2, this means that a 1% change in the market index will bring about a 1.2% change in the stock’s price. Stocks with high beta are considered to be more risky compared to the ones with low beta. The SLOPE Function[1] is categorized under Excel Statistical functions. It will return the slope of the linear regression line through the data points in known_y’s and known_x’s. In financial analysis, the SLOPE function can be used to calculate the beta of a stock.

How to Calculate Beta of a Stock in Excel

From this expanded form, it’s clear that the portfolio beta is nothing but the weighted average of the individual betas that make up the portfolio. All you’re left with, then, is the systematic risk (aka market risk). The comparison to a value beta calculation in excel of 1 is ultimately because the Market Beta (i.e., the beta of the market portfolio) is always equal to 1. It is important to follow strict trading strategies and rules and apply a long-term money management discipline in all beta cases.

On the other hand, if the beta is lower than 1, it indicates that the stock’s movements are less volatile and are not as sensitive to market movement. For example, you can see how you can get the beta value for a list of stocks in one function call. Excel stocks works very similarly where you can enter a list of stocks, navigate to the data tab, and click on stocks. From there, a window at the top right will appear where you can access beta as an attribute.

If you have any questions about the above please leave a comment and we will do our best to answer them. You have the option to show the output of the regression on a separate worksheet or on the same worksheet at the raw data. Input Y Range is the return on the stock, while Input X Range is the return on the index.

How to Calculate Beta in Excel for a Stock [Automatic & Manual]

If you follow the step above, you will have all the data ready to go. Typically the market is referred to as an index, like the S&P 500, and a comparison is made between how much a stock moves compared to the index. You can easily calculate the Beta using the formula in the template provided. The Beta of the Portfolio is 1.38, which means the stock is highly risky and volatile.

The portfolio beta helps investors better understand their portfolio’s exposure to market risk as a whole. And finally, if your portfolio beta is lesser than 1, then your investment portfolio is less risky in comparison to the overall market portfolio. Thus, if your portfolio beta is equal to 1, then your investment portfolio is as risky as the overall market portfolio.

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Peering through Yahoo (YHOO) Finance, Google (GOOG) Finance, or other financial data feeders, one may see a variable called beta amid other financial data, such as stock price or market value. There are two ways of calculating beta with Excel – the first uses the variance and covariance functions, while the second uses the slope function.The corresponding formulae are given below. Once you have the data, enter it into an Excel spreadsheet in two columns. In one column, enter the stock’s daily closing prices for a period of time.

Where rs is the return on the stock and rb is the return on a benchmark index. Beta measures how closely a stock follows the overall market movements. A beta of 1 means that a stock moves with the market — up or down — in equal amounts. Anything above 1 is considered to be more volatile than the market, while anything below 1 is less volatile.

How to calculate beta in Excel

As per the calculation, the beta value of AAPL stock is .0397, which is very low. This indicates that AAPL’s stock price does not vary significantly even if the S&P swings up and down. We will only need the “Date” and the “Adj Close” columns; hence we erased columns B to F. Calculate simple weekly returns of the stock by dividing the adjusted closing price in each week by the previous adjusted weekly closing, minus 1. And this brings us to the next point – identifying a ‘good’ portfolio beta.

beta calculation in excel

As you can see, both methods provide a stock’s beta with a slight difference in the value due to the calculation differences. This will provide you with the close price for both the index and the stock you are analyzing, which is all the data you need for the calculation. Then calculate the percentage of change in asset and percentage of change in the benchmark. A company has below asset and benchmark price from Jan-2018 to Dec-2018.

Beta Measurement and its Relation with Market

Remember, higher beta stocks tend to be riskier vis-a-vis low beta stocks. Ann Berkshire Inc on the other hand, is the most risky stock (relative to the market portfolio) given a Beta of 2.84. Try solving this on your own using the formula for portfolio beta from above. It’s important that you understand how the portfolio beta essentially is just a weighted average of individual stock betas. The portfolio beta is used to manage the exposure to the systematic risk of an already diversified portfolio. Let’s now explore how the use of the portfolio beta differs from that of the stock beta.

beta calculation in excel

This beta calculator allows you to measure the volatility of returns of an individual stock relative to the entire market. If you’re looking to learn how to manage a portfolio in excel, do check out our linked course on Investment Analysis & Portfolio Management (with Excel®). We start from the very basics and gradually build you up to become a PRO at investment analysis and portfolio management. If, on the other hand, you’re a risk-averse investor (i.e., someone who prefers not to take risk), then a portfolio beta of say, 1, might be far too high. By combining a range of different market exposures (Betas), you can better your exposure to market risk.

Method 2: Covariance and variance functions

Beta is very volatile as it depends on the stock market, and we know it very well. Beta helps determine the risk and expected rate of returns for a specific stock, as well as aids in Discounted Cash Flow evaluation. Mindle Plc has a negative beta equal to -0.04, which is very close to 0, meaning it’s the least risky of the 5 stocks (relative to the market portfolio).

However, there are always exceptions given the industry or sectors of low beta stocks, and so, they might have a low beta with the index but a high beta within their sector or industry. Now that we have the results of our regression, the coefficient of the explanatory variable is our beta (the covariance divided by variance). This is low, and implies that BP’s stock price does not vary significantly when the FTSE swings up and down. Then we simply calculate the fractional daily returns, as described in the picture below.

How to use the SLOPE Function in Excel?

This will give you the covariance between the Stock Returns and Market Returns. If you would prefer to calculate the beta using variance and covariance, steps 1 through 3 remain the same as the slope method, but the last step uses a different formula. You will need the stock’s daily (or monthly) closing prices for a certain period of time — usually 5-10 years. You can find this on financial websites or using a tool like Wisesheets. Beta is an essential element in stock analysis; it measures stock or portfolio risk.

beta calculation in excel

We will start with the slope method because it is easier and faster. This is the most typical calculation performed to calculate the beta of a stock; however, often times another method known as the slope method is used. A higher beta means greater risk, while a lower beta indicates less risk.

SLOPE Function Formula, Examples, How to Use to Calculate Beta

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