Explain two ways you can use Excel to calculate a stock’s Beta.
Explain two ways you can use Excel to calculate a stock’s Beta.
Homework Answers
Method 1 - Beta formula
Beta = Covariancei,m / Variancem
Let us say we have two data series : the first is a series containing the returns of the stock, and second is a series containing the returns of the market.
Covariancei,m is the covariance between the stock returns, and the market returns. This is calculated using COVAR function in Excel.
Variancem is the variance of the market returns. This is calculated using VAR function in Excel.
Beta is calculated as Covariancei,m / Variancem. The values of Covariancei,m and Variancem are calculated using the Excel functions discussed above.
Method 2 - Regression
Let us say we have two data series : the first is a series containing the returns of the stock, and second is a series containing the returns of the market.
Beta is the slope of the regression line, with the dependent variable (y) being the stock returns, and the independent variable (x) being the market returns.
The slope of the regression line is calculated using SLOPE function in Excel.
The value of the slope calculated using this function is the beta.
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