Overview
This portfolio beta template is used to determine the weighted average beta of the stocks in your stock portfolio. Beta (β) is a measure of volatility relative to the market. It is an important metric to consider when evaluating how an investor's portfolio reacts to market trends and shocks.
Reacting to Financial Markets
Beta (β) measures how volatile a stock's returns are, relative to the overall market. By looking at beta, financial analysts have a way to connect a stock's performance to the market's performance. For example, a company with a high beta is generally seen as riskier, with higher returns since it responds to the market more strongly. In contrast, a company with a low beta responds less to movements in the market. Beta can be evaluated with the following criteria:- β > 1: moves the same direction as the market, but with larger movements
- β = 1: moves the same direction as the market, exactly as much as the market
- 0 < β < 1: moves the same direction as the market, but with smaller movements
- β = 0: doesn't move with the market at all, completely uncorrelated
- B < 0: moves opposite to the market
- Ra = Expected return of the security
- Rrf = Risk-free rate
- Ba = Beta (β) of the asset
- Rm = Expected return of the asset
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