What is beta in finance?

Beta (β) measures a stock's volatility relative to the overall market. Beta of 1 means the stock moves with the market. Above 1: more volatile (riskier). Below 1: less volatile (defensive). Negative: moves opposite to market (rare, usually gold or specific hedges).

How do I calculate beta?

Beta = Covariance(Stock, Market) / Variance(Market). You need historical returns for both the stock and a market index (S&P 500 in US). Calculate the covariance and variance, then divide. Our calculator does this from a returns dataset, or accepts covariance/variance directly.

What is a good beta value?

Depends on your risk tolerance. Conservative investors prefer beta 0-1 (defensive stocks). Aggressive investors choose beta 1.5-2 (growth, tech). 'Good' beta depends on your portfolio strategy — diversifying across betas reduces overall portfolio risk.

What is levered vs unlevered beta?

Unlevered beta (asset beta) reflects only business risk, removing the effect of debt. Levered beta (equity beta) includes both business AND financial risk from debt. Conversion: Levered = Unlevered × (1 + (1 − Tax) × D/E). Use levered beta in CAPM for equity returns.

How is beta used in CAPM?

CAPM (Capital Asset Pricing Model): Cost of Equity = Risk-Free Rate + β × (Market Return − Risk-Free Rate). Beta is the multiplier on the market risk premium. Higher beta = higher required return = higher cost of equity for valuation.

What is portfolio beta?

Portfolio beta is the weighted average of individual stock betas, where weights are the dollar values. Portfolio β = Σ (wi × βi). A portfolio with 50% S&P 500 ETF (β=1.0) and 50% utility ETF (β=0.5) has portfolio beta of 0.75 — less risky than the market.

How often should I recalculate beta?

Beta is unstable and should be recalculated quarterly or annually. Market conditions, company size, business mix, and capital structure all affect beta. Use 3-5 years of monthly returns or 1-2 years of weekly data for the most stable estimate.

Why is correlation important when interpreting beta?

Beta only measures volatility relative to market; it doesn't measure how reliably the stock TRACKS the market. Correlation tells you how reliable the relationship is. Beta of 1.5 with correlation 0.95 is meaningful; beta of 1.5 with correlation 0.3 is unreliable (lots of noise).

Beta Calculator

Beta (β) measures a stock's volatility relative to the overall market. A beta of 1 means the stock moves with the market; above 1 means more volatile (and riskier); below 1 means less volatile (defensive). Beta is the key input for CAPM (Capital Asset Pricing Model) cost of equity calculation. Our calculator supports 3 methods: (1) compute beta from historical returns of stock and market index, (2) input covariance and market variance directly, (3) convert unlevered (asset) beta to levered (equity) beta accounting for capital structure.

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calendar_today Updated: April 2026

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show_chartBeta from Returns

Stock Returns (comma-separated)

Period returns as decimals (0.05 = 5%)

Market Returns (same periods)

analyticsBeta Result

Beta (β)

1.39

Moderate Risk

Above market — moderately aggressive

Covariance

0.000487

Mkt Variance

0.000351

Correlation

0.99

Periods

Stock Mean

2.6%

Mkt Mean

2.2%

Input Values

Stock Returns (comma-separated)

Market Returns (comma-separated)

tips_and_updates Tips

• Use 3-5 years of monthly returns or 1-2 years of weekly for stable beta
• Beta is unstable — recompute periodically as market conditions change
• Beta vs S&P 500 is the US standard; different indices give different values
• Higher beta = higher CAPM cost of equity = higher discount rate in DCF
• Levered beta includes financial risk; unlevered (asset) beta excludes it
• Negative beta is rare — typically gold, some bonds, certain hedges
• Sector beta averages: utilities ~0.5, tech ~1.3, biotech ~1.6

How to Use This Calculator

Choose method

Returns dataset, direct cov/var, or unlevered conversion.

Enter data

Stock + market returns, or covariance + variance.

Review beta + risk

Beta, interpretation, correlation.

The Formula

Beta of 1.0 means stock moves perfectly with market. β=1.5 means 50% more volatile than market (when market goes up 10%, stock goes up 15%). β=0.5 means half as volatile. Negative beta (rare) means stock moves opposite to market. Higher beta = higher cost of equity in CAPM.

β = Cov(Stock, Market) / Var(Market) | Levered β = Unlevered β × (1 + (1 − T) × D/E)

lightbulb Variables Explained

β Beta coefficient (slope of stock vs market regression)
Cov Covariance between stock returns and market returns
Var Variance of market returns
D/E Debt-to-equity ratio (for leverage adjustment)
T Corporate tax rate

tips_and_updates Pro Tips

Use 3-5 years of monthly returns or 1-2 years of weekly for stable beta

Beta is unstable — recompute periodically as market conditions change

Beta vs S&P 500 is the US standard; different indices give different values

Higher beta = higher CAPM cost of equity = higher discount rate in DCF

Levered beta includes financial risk; unlevered (asset) beta excludes it

Negative beta is rare — typically gold, some bonds, certain hedges

Sector beta averages: utilities ~0.5, tech ~1.3, biotech ~1.6

Frequently Asked Questions

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Beta Calculator

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How to Use This Calculator

Choose method

Enter data

Review beta + risk

The Formula

lightbulb Variables Explained

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Frequently Asked Questions

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