Beta is also known as the volatility or the overall movement of a particular stock. Beta is calculated with the comparison to the benchmark index, in this case, to know how much a particular stock is volatile, compared to the NIfty as a whole. The Beta of a portfolio is calculated by calculating the Beta of every individual stock in the portfolio and adding the Weighted beta of every stock to get the total Beta of the Portfolio.

Beta is a number given to a particular stock that denotes how much it has moved in the context of the Benchmark Index (In this case the Nifty).

It can be also termed as the Volatility of a particular stock in comparison with the Nifty. Beta can be also known as the Systematic Risk of any stock compared to the Index as a whole

For example, if the Beta of a stock “X” is 2, then that denoted it is 2 times or 100% more volatile than the Nifty.

Similarly, if a stock goes up & down by more than the Nifty then the Beta of that particular stock will be more than **1** and if it moves less than the Nifty then the Beta will be less than “**1**”.

To calculate the overall beta of a portfolio one has to find out the Beta values of Individual stocks according to the weightage of individual stocks.

Calculation of the BETA is shown in the table below-

Therefore as calculated the overall Beta of the above portfolio of 4 stocks, the Beta turns out to be **0.836** or **0.84** (rounded to the 2nd decimal place). This means that the overall Beta of this Portfolio is less than that of the Nifty as most of the stocks in this Portfolio are low Beta stocks.

To imply that in numbers, If Nifty moves my **100** points up or down, the value of this portfolio will move by **83.6** Rupees on either side which means that the overall volatility of this Portfolio is less than that of Nifty and the Price swings will also be less than Nifty.

The change in the Beta of any portfolio not only depends upon the Beta of a particular stock but also on the total weightage of the stock in the Portfolio.

For example, as seen in the above portfolio, the overall Beta is less than that of Nifty which is 1, but it consists of 1 stock that has a Beta higher than that of Nifty but as the overall weightage of the Stock in the Portfolio is less, therefore, the overall portfolio turned out to be less than 1.

If we increase the weight-age of Yes Bank in the Portfolio to **0.5** and reduce the weightage of ITC to **0.05** then the overall Beta of the portfolio will change drastically to **0.984** which will increase the overall Beta by **0.15** points.

The Beta of a portfolio plays a major role among Investors as “**Low risk-taking**” investors choose stocks that have a low Beta (Less than 1) as the overall volatility will be less in such stocks, on the other hand, Investors with “**Higher Risk Appetite**” choose high Beta stocks (Beta more than 1) which have the potential to outperform the benchmark index (Nifty) in terms of returns but the downside with high Beta stocks is that they tend to fall more in times of an Overall market sell-off. Therefore one should identify their risk profile before choosing Stocks.

Tagged With: betabeta ogf portfolioclaculate betabeta stocks

Still got Doubts?

Related FAQs

What is intrinsic value of stock and how it is calculated?

Intrinsic value basically means real stock value and can be calculated using these three ways:

- Discounted cash flow analysis
- Analysis based on financial metric
- Dividend Discount method

How are brokerage charges calculated by stockbrokers in India?

Brokerage charges are not uniform and various stockbrokers in India charge difference percentage from your trading volume as their brokerage charge.

Is it a good time to invest in stocks? Bullish Stock Market

There are several questions that one can ask your advisor. These questions include whether its good time to enter or exit the market? Should in exit from debt and move to FD? do I continue my SIP portfolio? and other such questions.

What are basket orders in stock market?

Basket orders means a customized bunch of shares which can be traded by investors at once. It is one of the best ways as it also helps in diversification of portfolio and helps you the handle the stocks in the best way possible.

Which is Best Intraday Tips App for Indian Stock Market?

Making money off the stock market is no easy feat. It would help if you had a calculated investment while reading the stock market and ensuring that you have all the metrics checked out for making a sensible investment.

How Interest is calculated on PPF account Investment?

The interest rate on PPF for the quarter Jan - March 2021 is 7.1% p.a. But, do you know how interest is calculated on your PPF account balance. Let's see to it.

What is Mutual Fund Expense Ratio and how to calculate it?

The expense ratio in the case of mutual funds sector refers to the measure of the amount costs by an investment company for operating a mutual fund.

Can intrinsic value of Options be negative?

Intrinsic value plays a major role as it tells the actual value of the stock. Also, it can never be negative, it will always be greater than or equal to zero. It is also calculated as the absolute difference between current price and strike price.

What are popular Financial Planning Tools?

There are plenty of financial tools that can come in handy. Some of them are retirement calculators, health insurance calculators, SIP planner/calculator, fixed deposit calculator, budget planner, and income tax calculator.

How is Investar India Software for Technical Analysis?

Investar India claims it to be an India based Stock Market Software, which offers various crucial functionalities such as Fundamental Analysis, Technical Analysis, Portfolio Management, and so on.