WHAT IS BETA VALUE FOR STOCKS?

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Market risk and volatility of investing in stocks is commonly measured by what is called beta. It is a tool that facilitates investors' choices regarding the type of investment that best suites their risk tolerance.

However, there are times when different sources present different values of beta. In such cases, investors are usually confused about exactly what course of action to take.

In order to bring light in the commonly confusing situation of receiving different betas for one and the same stock, let's first consider the definition of a beta. Beta is a measurement of the risk concerning the market or the volatility of a particular stock.


Methodology / Formula

Beta is calculated as :




where,
Y is the returns on your portfolio or stock - DEPENDENT VARIABLE
X is the market returns or index - INDEPENDENT VARIABLE
Variance is the square of standard deviation.
Covariance is a statistic that measures how two variables co-vary, and is given by:





Where, N denotes the total number of observations, and and respectively represent the arithmetic averages of x and y.

In order to calculate the beta of a portfolio, multiply the weightage of each stock in the portfolio with its beta value to arrive at the weighted average beta of the portfolio

Standard Deviation

Standard Deviation is a statistical tool, which measures the variability of returns from the expected value, or volatility. It is denoted by sigma(s) . It is calculated using the formula mentioned below:




Where, is the sample mean, xi’s are the observations (returns), and N is the total number of observations or the sample size.

Stock Beta Essence:

Beta information may be a powerful tool when used appropriately. However, it may be misleading as well, since the calculations on which it is based are extracted from historical data. As a result no one can tell for sure what the value of beta will be the next year.

So, you can use beta in the short-term for the measurement of the risk of a particular stock's prices and their fluctuations. Beta is also useful in giving us an insight in the reaction of a stock to different changes in the market and interest rates.

Nevertheless, beta is useless when legislation changes are made.

List of High Beta Stocks on BSE 500:

The following are the list of beta values for the stocks listed in Bombay Stock Exchange(BSE).

No Company Beta
1 IVRCL Infra. 1.7235
2 JP Associates 1.706
3 Indbull.RealEst. 1.6859
4 H D I L 1.6207
5 Unitech 1.5856
6 Reliance Infra. 1.5781
7 India Infoline 1.5709
8 Suzlon Energy 1.5513
9 ICICI Bank 1.5432
10 Lanco Infratech 1.4926
11 Reliance Capital 1.4888
12 DLF 1.4756
13 Rel. Comm. 1.4564
14 IFCI 1.4371
15 Orbit Corpn. 1.4327
16 Tata Steel 1.4313
17 Sterlite Inds. 1.4269
18 Nag. Constructn. 1.3699
19 Welsp.Guj.Stahl 1.3616
20 I D F C 1.3523
21 Punj Lloyd 1.3208
22 JSW Steel 1.31
23 Adlabs Films 1.3082
24 Aban Offshore 1.3018
25 Century Textiles 1.2954
26 Hind.Construct. 1.2931
27 Mercator Lines 1.2827
28 Essar Oil 1.2771
29 S Kumars Nation 1.277
30 Ansal Properties 1.2765
31 Aptech 1.2748
32 Bombay Dyeing 1.2693
33 Praj Inds. 1.2687
34 Kotak Mah. Bank 1.2446
35 Sterlite Tech. 1.243
36 Rel. Indl. Infra 1.2427
37 Rel.Nat.Resour. 1.2409
38 Axis Bank 1.237
39 KF Airlines 1.2255
40 GVK Power Infra. 1.2245
41 S A I L 1.2233
42 NIIT 1.2043
43 Educomp Sol. 1.2036
44 Yes Bank 1.2025
45 Reliance Inds. 1.1994
46 Hindalco Inds. 1.1837
47 Parsvnath Devl. 1.1808
48 Triven.Engg.Ind. 1.173
49 Dev.Credit Bank 1.172
50 Larsen & Toubro 1.168
51 Tata Motors 1.1661
52 TV 18 India 1.1599
53 H D F C 1.1582
54 Puravankar.Proj. 1.1496
55 Nag. Fert & Chem 1.1461
56 Hind.Oil Explor. 1.1437
57 Everonn Systems 1.1407
58 Firstsour.Solu. 1.1257
59 Bajaj Hindusthan 1.1256
60 IVR-Prime Urban 1.1232
61 Ispat Inds. 1.1219
62 Voltas 1.1203
63 Moser Baer (I) 1.119
64 JSW Holdings 1.1111
65 Idea Cellular 1.1085
66 SREI Infra. Fin. 1.0993
67 Arvind Ltd 1.0965
68 Polaris Soft. 1.0916
69 Kolte Patil Dev. 1.0905
70 3i Infotech 1.0882
71 Cairn India 1.0843
72 Mahindra Holiday 1.083
73 Rolta India 1.0829
74 Jet Airways 1.0827
75 JP Hydro Power 1.0788
76 Chambal Fert 1.0777
77 Genus Power 1.0776
78 Jindal Steel 1.0763
79 Wire & Wireless 1.0751
80 Core Projects 1.0719
81 Hind.Copper 1.0704
82 Kirl. Ferrous 1.0613
83 KLG Systel 1.0598
84 Sh.Renuka Sugar 1.0594
85 Videocon Inds. 1.0564
86 REI Agro 1.0527
87 D C Holdings 1.0514
88 LIC Housing Fin 1.0514
89 GMR Infra. 1.0425
90 NESCO 1.037
91 R C F 1.0369
92 Brigade Enterpr 1.0351
93 HCL Technologies 1.035
94 Peninsula Land 1.0328
95 Golden Tobacco 1.0327
96 MIC Electronics 1.0324
97 IDBI Bank 1.0323
98 Dish TV 1.0309
99 McNally Bharat 1.0304
100 St Bk of India 1.0285
101 Sintex Inds. 1.0282
102 Neyveli Lignite 1.0267
103 Escorts 1.0232
104 Alok Inds. 1.0226
105 Reliance Petro 1.018
106 Ruchi Soya Inds. 1.0178
107 Walchan. Inds. 1.0165
108 M & M 1.0161
109 S T C 1.0125
110 Patel Engg. 1.0065
111 Prime Focus 1.0028
112 ICSA (India) 1.0014

Final Piece of Advice:

Use one and the same beta source when comparing stocks of different companies. Additionally, let the source be as reliable as possible. Finally, use the beta only for short-term uses not for long-term ones, because it is more likely to predict the price fluctuations over the short-term.