# How to Compute the Beta of the Company's Stock

Pages: 8 (2464 words) Published: January 21, 2013
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I need to calculate beta of the company's stock?
eg: returns for co. are -5%, 5%, 8%, 15% and 10% over 5 years. the returns for stock exchange are -12%, 1%, 6% 10% and 5% for the same 5 years.

How to compute the beta of the company's stock?
* 5 years ago
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anilwyd
Bete is measure of Risk.
Year 1 Beta = -5/12 = 0.42
Year 2 Beta = 5/1 = 5
Year 3 Beta = 8/6 = 1.33
Year 4 Beta =10/10 = 1
Year 5 Beta = 10/5 = 2

Overall Beta for five Year = -5+5+8+15+10/(-12+1+6+10+5)
= 3.3

It means , when Index moves @ 1% the Company Share will move by 3.3%

The more the Bete , the more the Risk. also Return.

So be carefull in investing in Companies having high Beta.

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In order to manage the risks associated with investing in stocks,most investors turn to a practice called diversification when building their stock portfolios. Diversification is a method of risk reduction in which investors buy multiple securities instead of just one. As a shareholder in en there is always the chance that another one could gain enough to offset the loss. It's basically just a way for you to not put all your eggs in one basket, which is also the concept underlying mutual funds . There are two ways to increase your diversification (and reduce your risk): increase the number of stocks you own or own stocks that are fundamentally different from one another. Of course, you can't totally eliminate all the risks involved in stock investing because there is still market risk, the risk that the entire market will fall. In that case, no matter how well diversified you are, your portfolio will suffer.

The other variable that will influence the amount of risk in your stock portfolio is your time horizon. Over the long, long term (several decades), history has shown time and again that stock prices outperform almost all other investments. However, in the short run stock prices often go down (about half the time, if the time period is sufficiently short). That means that if you are at a point in your life when you may need to sell your stocks in the short run (such as if you're close...