Mention the formula of calculating beta in security
analysis?
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Answer Posted / john
Beta is a measure of the companies non systematic risk with
respect to the market's systematic risk. Mathematically,
beta is the coefficient of regression between the company's
stock trading and the market. Suppose, the company is
trading on S&P 500, and the company in question is
microsoft. Then we will have to obtain a data set of a
sufficiently large sample of daily stock prices of microsoft
and the S&P 500 index. We will have to regress these two
data sets (S&P 500 daily index value, and microsoft daily
stock price) for our chosen sample size. The reported
coefficient of regression of this regression analysis, will
be the required beta for microsoft. A sample size of about 2
years of data should be safe. However, at times one may have
to clean this data by removing events which are unexpected
and do not represent general market movements and
conditions.
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