Beta

A beta coefficient is a measure of the volatility, or systematic risk, of an individual

stock in comparison to the unsystematic risk of the entire market. Beta is used in
the capital asset pricing model (CAPM), which calculates the expected return of
an asset using beta and expected market returns. In statistical terms, beta
represents the slope of the line through a regression of data points from an
individual stock's returns against those of the market.

Interpreting Beta
The sensitivity of an asset’s return to the market return is referred to as the asset’s
beta. The beta is simply is measure of the sensitivity of a stock to market
movements. It is the standardized measure of the covariance of the asset’s return
with the market return. Beta can be calculated as follows for the period from t=1
to t = n

βi = oi,M = ∑nt=1 [(Rit - Ṝit) (RMt - ṜMt)

oM2 ∑nt=1 (RMt - ṜMt)2