Stock Beta Calculator – Market Risk Measure
Calculate stock beta to measure market-relative volatility, assess systematic risk, and compute expected returns using the Capital Asset Pricing Model (CAPM).
About This Calculator
The Stock Beta Calculator helps investors and analysts measure a stock's volatility relative to the overall market. Beta (β) is a key metric in the Capital Asset Pricing Model (CAPM) that quantifies systematic risk — the risk that cannot be diversified away. By comparing a stock's historical returns to market returns, this calculator determines how sensitive the stock is to market movements.
This calculator uses two approaches: the CAPM-based beta formula computes beta as (Stock Return − Risk-Free Rate) / (Market Return − Risk-Free Rate), and the CAPM expected return formula calculates E(R) = Rf + β × (Rm − Rf). A beta of 1 means the stock moves in line with the market; above 1 indicates higher volatility; below 1 indicates lower volatility. The results include expected return using the CAPM framework, helping investors make informed portfolio decisions.
Regional Notes
India: Indian investors can use the Nifty 50 return as the market benchmark and the 10-year Indian government bond yield (~7%) as the risk-free rate. SEBI mandates beta disclosure for mutual fund schemes.
US: US investors typically use the S&P 500 return as the market proxy and the 10-year US Treasury yield (~4-5%) as the risk-free rate. The S&P 500 has a beta of 1 by definition.
UK: UK investors can use the FTSE 100 return as the market benchmark and the 10-year UK gilt yield (~4%) as the risk-free rate. The Bank of England publishes yield data daily.
Frequently Asked Questions
What is stock beta?
Beta measures stock volatility relative to the market. A beta of 1 means the stock moves with the market. Greater than 1 is more volatile, less than 1 is less volatile, and negative beta means inverse correlation.
How is beta calculated?
Beta is calculated as the covariance of stock returns and market returns divided by the variance of market returns. It uses historical data, typically 3-5 years of monthly returns.
What is a good beta for a stock?
Conservative investors prefer low beta between 0.5 and 1.0. Growth investors accept 1.2 to 2.0. Defensive sectors like utilities have beta under 1, while tech stocks often exceed 1.2.
What is the CAPM model?
Expected return = risk-free rate + beta × (market return - risk-free rate). For example, if Rf = 6%, market return = 12%, and beta = 1.2, the expected return = 13.2%.
What are the limitations of beta?
Beta is backward-looking based on past data, assumes linear relationships, and may not predict future volatility. It treats upside and downside volatility equally, and low trading volume can produce unreliable estimates.
How does beta affect portfolio diversification?
Combining assets with different betas reduces overall portfolio volatility. Mixing high-beta growth stocks with low-beta defensive stocks creates a balanced portfolio for desired returns with manageable risk.
What is difference between beta and alpha?
Beta measures systematic risk or market-related volatility. Alpha measures excess return beyond what beta predicts. Positive alpha means the investment outperformed after adjusting for risk.