Definition of Beta (Coefficient)

Any market risk associated with any kind of security is measured in terms of Beta. Also known as beta coefficient, it is the ratio of historical returns of an individual stock to the historical returns of the market.

Points to remember:

• Calculation of Beta is done using regression analysis.
• It is mostly used in CAPM (Capital Asset Pricing Model) to calculate the expected returns of the asset.

Example:

If the stock’s value increased by 10% and the market rose by 8%, then the value of beta is 10/8= 1.25.