Take, for example, General Motors; its CAPM Beta is 1.43. This implies if the stock market moves up by 5%, then General Motors stock will move up by 5 x 1.43 = 7.15%.
How is beta calculated in CAPM?
Beta could be calculated by first dividing the security's standard deviation of returns by the benchmark's standard deviation of returns. The resulting value is multiplied by the correlation of the security's returns and the benchmark's returns.
How do you calculate beta with example?
For example, if Apple Inc. makes up 0.30 of the portfolio and has a beta of 1.36, then its weighted beta in the portfolio would be 1.36 x 0.30 = 0.408. Add up the weighted beta numbers of each stock. The sum of the weighted betas of all the stocks in the portfolio will give you the portfolio's overall beta.
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.
How is CAPM calculated?
In layman's terms, the CAPM formula is: Expected return of the investment = the risk-free rate + the beta (or risk) of the investment * the expected return on the market – the risk free rate (the difference between the two is the market risk premium).