Simplest method of calculating beta

[tonster01]

Hi all

Until recently, I have purely traded based on technicals and price action with little or no regard to news, noize etc

I have recently been exposed to spread trades in equities using beta hedges etc

My question is ( forgive me but basic for me...but best to be sure before I put money on this method)

To calculate beta..all I need to do is for example
Gather the weekly closing data for say the FTse 100 in excel from yahoo
Take the stock i want to calculate the beta for
Divide one close by the other and this is my beta calculation...

Am i missing something

Please do not offer advice of a very technical nature on this subject to me as unfortunately...it will be lost at this early stage of using this method.

As I said, I am a firm believer in Kiss...keep it simple stupid!

Any help would be much appreciated!

Tonster

 

[Oppi1904]

Hi all

Until recently, I have purely traded based on technicals and price action with little or no regard to news, noize etc

I have recently been exposed to spread trades in equities using beta hedges etc

My question is ( forgive me but basic for me...but best to be sure before I put money on this method)

To calculate beta..all I need to do is for example
Gather the weekly closing data for say the FTse 100 in excel from yahoo
Take the stock i want to calculate the beta for
Divide one close by the other and this is my beta calculation...

Am i missing something

Please do not offer advice of a very technical nature on this subject to me as unfortunately...it will be lost at this early stage of using this method.

As I said, I am a firm believer in Kiss...keep it simple stupid!

Any help would be much appreciated!

Tonster

Take a look at the below link:

Beta Calculation on Excel - YouTube

Please bear in mind that except from the beta of a stock you also have the alpha (constant term/intercept) as well. It is a measurement of how your stock has underperormed/outperformed the General Index.
So it is important to calculate it as well.

I have also uploaded an Excel spreadsheet calculating the alphas(highlighted in yellow color) and betas (highlighted in red color) of 4 Greek stocks MYTIL (Mytilineos Holdings), NBG (National Bank of Greece), ELPE (Hellenic Petroleum) and ATE(Agricultural Bank of Greece). I have used the regression analysis and not the slope method cause you get more statistics about your sample which are very useful. For this you need the add-in called Analysis Tool Pack which you have to import on Excel.

From the results you can see that 3 stocks have outperformed the General Index (i.e. positive alpha) and ATE has underperformed the market (alpha is equal to -0.76 per cent.). So this means in general (for the time period chosen)ATE gives you a return of 1.577 times the return of the index MINUS 0.76%. So if the Index moves moves say +2% you expect (on average ) ATE to move by +2.4%((1.577*2%) - 0.76% = +2.4%). However when the General Index moves by -2% then ATE is expected to move by -3.91% ((1.577* (-2%)) - 0.76% = -3.91%). Lets take the stock of MYTIL. If the Genral Index moves by +2% then you expect MYTIL to move by ((1.467* +2%) +0.44% = 3.37%). If the General Index moves by -2% then you expect MYTIL to move by -2.49% ((1.467* (-2%)) +0.44% = -2.49%)Do you see the difference (in returns) and the importance of alpha?

Hope that I helped you. Feel free to ask me any questions if you have any.

 

[Rhody Trader]

To calculate beta..all I need to do is for example
Gather the weekly closing data for say the FTse 100 in excel from yahoo
Take the stock i want to calculate the beta for
Divide one close by the other and this is my beta calculation...

All you are deriving here is a price ratio. That's not beta. Beta is an expression of how a stock's returns (not prices) relate to those of the overall market. For example, a stock with a beta of 2 would normally move in percent terms twice as much as the market, up or down. As suggested in the prior post, beta is derived from regression.

It should be noted, however, that betas are not fixed. They move over time.

 

[tonster01]

Oppi, Rhodi

Many thanks for your help and advice...it is genuinley appreciated and I will male sure make use of it going forward!

Best regards

T