Home
Back
Weighted Beta Formula:
| From: | To: |
Weighted Beta is a measure of the systematic risk of a portfolio that takes into account the proportion of each investment and its individual beta. It helps investors understand the overall volatility of their portfolio relative to the market.
The calculator uses the Weighted Beta formula:
Where:
Explanation: The formula multiplies each asset's allocation by its beta, then sums these products to get the portfolio's overall weighted beta.
Details: Weighted Beta is crucial for portfolio management as it helps investors assess the risk profile of their entire portfolio, make informed asset allocation decisions, and maintain their desired risk exposure.
Tips: Enter the allocation (as a decimal between 0 and 1) and beta for each asset in your portfolio. You can calculate for up to 3 assets. The sum of allocations should ideally equal 1 (100% of the portfolio).
Q1: What does a Weighted Beta of 1 mean?
A: A Weighted Beta of 1 means your portfolio's volatility is expected to match the overall market's volatility.
Q2: What if my Weighted Beta is greater than 1?
A: A Weighted Beta > 1 indicates your portfolio is more volatile than the market. It will likely gain more than the market in upswings but lose more in downturns.
Q3: How is beta calculated for individual stocks?
A: Beta is calculated using regression analysis against a market index (typically S&P 500) over a period (usually 3-5 years).
Q4: Should I aim for high or low Weighted Beta?
A: It depends on your risk tolerance. Conservative investors typically prefer lower betas (0.5-1), while aggressive investors may accept higher betas (>1).
Q5: Does Weighted Beta account for unsystematic risk?
A: No, Weighted Beta only measures systematic (market) risk. Unsystematic (specific) risk can be reduced through diversification.