Systematic risk is that component of total portfolio risk which is not controlled through the

process of diversification. It indicates the manner in which returns change systematically with
changes in the market return. It indicates the relationship between portfolio return and market
return.

Beta measures a stock's volatility, the degree to which its price fluctuates in relation to the
overall market. Beta describes the sensitivity of an instrument or portfolio to broad market
movements. The stock market (represented by an index such as the S&P CNX Nifty or Sensex)
is assigned a beta of 1.0.

A beta of 1 indicates that the security's price tends to move with the market. A beta greater than 1
indicates that the security's price tends to be more volatile than the market, and a beta less than 1
means it tends to be less volatile than the market.

This relationship can be computed by determining the regression coefficient between portfolio
and market return as

βp = Cov ( Rp, Rm)

σ2
Where
βp is the systematic risk
COV ( Rp, Rm) is the covariance of the portfolio returns with market risk

σ2 is the variance (Standard deviation squared of the market return)

Most of the time calculating beta mechanically with the help of formula is a time consuming
task. MS Excel helps us to calculate beta with accuracy and in less time.

With the help of illustration it has been shown below how the beta has been calculated for Birla
Sunlife Mutual fund-95 in MS Excel from 1/10/2008 to 31/12/2008

Step 1- Collect the closing price of S&P CNX Nifty from 1/10/2008 to 31/12/2008 and feed the
data in cell (D5:D63).

Step 2- Similarly feed the closing price of fund NAV in cell (F5:F63).

Step 3- We can get the Nifty returns in column E6, by putting the formula {= (D6-D5)/D5*100}.

Step 4- Similarly in column G6, were the formula will be {= (F6-F5)/F5*100} and so on for
other cells.
Calculation of beta :

Beta= Cov ( Rm, Rp)/ Variance Rm

Covariance can be calculate in any cell by using the formula in Excel

{=COVAR (E5:E63,G5:G63)} which comes out to be 4.1437

Similarly Variance can be calculated in any cell by using the formula{ = VAR(E5:E63)} which
comes out to be 15.2838

Beta = 4.1437/ 15.2838

= 0.2712