Beta measures how volatile a stock is relative to the overall market, a key input for the CAPM expected-return formula this site’s capm calculator uses.
How it works
Multiplying the stock’s correlation with the market by the ratio of the stock’s standard deviation to the market’s standard deviation gives beta — mathematically equivalent to dividing covariance by market variance.
What this does not include
This does not include how to actually compute correlation and standard deviation from historical return data — it takes those statistics as already-known inputs rather than deriving them from a raw return series.
How to use this calculator
- Enter the stock’s correlation with the market, stock standard deviation, and market standard deviation.
A worked example
A stock with 0.8 correlation to the market, 25% stock volatility, 15% market volatility: beta = correlation × (stockStdDev/marketStdDev) = 0.8 × (25/15) = 1.33 — more volatile than the overall market.
What the variables mean
| Variable | Meaning |
|---|---|
| Correlation | How closely the stock’s movements track the market’s |
| Stock std dev | Stock’s own volatility |
| Market std dev | Overall market volatility |
Edge cases worth knowing
A beta above 1 means the stock tends to amplify market moves; below 1 means it dampens them. A beta of 1.33 suggests roughly 33% more volatility than the market itself, in either direction.
Correlation can’t exceed 1 — a value like 1.5 is outside the mathematically valid range for a correlation coefficient, so the calculator declines to show a result.
Frequently asked questions
What does a beta of 1 mean?
It means the stock’s returns have historically moved in line with the overall market’s volatility — neither more nor less volatile on average.
Can beta be negative?
Yes, though it’s rare — a negative beta means a stock has tended to move opposite to the market, which some investors seek out specifically for portfolio diversification.
Does beta predict future volatility?
Not reliably — beta is calculated from historical data and can shift meaningfully as a company’s business, capital structure, or the broader market environment changes.