The beta of an asset is calculated as the covariance between expected returns on the asset and the market, divided by the variance of expected returns on the market. The relationship between beta and the expected market sensitivity is as follows: β = 0: No Market Sensitivity. β < 1: Low Market Sensitivity.
What is the formula for calculating beta?
Beta can be calculated by dividing the asset's standard deviation of returns by the market's standard deviation. The result is then multiplied by the correlation of the security's return and the market's return.
Is beta priced in CAPM?
The beta (β) of an investment security (i.e., a stock) is a measurement of its volatility of returns relative to the entire market. It is used as a measure of risk and is an integral part of the Capital Asset Pricing Model (CAPM).
What is the alpha and beta of CAPM model?
Alpha measures the amount that the investment has returned in comparison to the market index or other broad benchmark that it is compared against. 1. Beta measures the relative volatility of an investment. It is an indication of its relative risk.