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What it calculates: Beta, Covariance (asset, market), Market Variance, Band (0 inverse / 1 below market / 2 above market).
Updated 5 June 2026 · Transparent assumptions
The asset moved 24% more than the market, in the same direction
Beta is the covariance between the asset and the market divided by the market\u2019s variance: 9.2 over 7.44 gives 1.24. Read it as sensitivity — a market move of 10% is associated with a move of about 12.4% in this asset, historically and on average.
The two components behind it matter. Covariance measures whether the two move together and by how much; market variance normalises that by how much the market itself moved. A high covariance in a turbulent market can produce a modest beta, which is why the intermediate figures are shown rather than hidden behind the ratio.
The other half of an asset\u2019s volatility is specific to it, and it is free to diversify away
Total risk splits into systematic risk, which comes from the market and affects everything, and idiosyncratic risk, which is specific to the company. Holding thirty uncorrelated positions removes most of the second and none of the first. Beta measures only the part that remains, which is why asset pricing models price beta and ignore the rest.
The practical consequence is that a high-volatility stock is not necessarily a high-beta one. A biotechnology company whose price swings on trial results has enormous total volatility and may have a beta near 1, because those swings have nothing to do with the market. Volatility and beta answer different questions and a portfolio needs both.
Period length, frequency and index choice each move it
Beta computed on five years of monthly data differs from the same asset on two years of weekly data, often substantially. Published betas from different providers disagree for exactly this reason, and many apply a shrinkage adjustment pulling the raw figure toward 1, on the empirical observation that betas tend to revert over time.
The index matters as much. Beta against a broad domestic index is not beta against a global one or a sector index, and for a company whose business is concentrated in one sector the choice can change the figure by half a point. Any beta should carry its period, frequency and benchmark, or it cannot be compared with another.
Describe a company that has changed
Beta is estimated from the past and applied to the future, which assumes the company\u2019s sensitivity is stable. It rarely is. Leverage changes beta directly — a company that doubles its debt raises equity beta mechanically — and so do acquisitions, divestments and any shift in the mix of businesses.
The estimate is also just that: an estimate, with a standard error that is often wide on short samples. A beta of 1.24 computed on five observations, as in the default here, carries very little statistical weight. Use at least three years of monthly data before treating the figure as anything more than illustrative.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Returns are assumptions, not guarantees. Actual results may vary because of market performance, taxes, fees, inflation, and timing. This is an educational projection, not investment advice.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Tested that beta is covariance over market variance, and that an asset moving identically to the market returns exactly 1.
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