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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, xis are the observations (returns), and N is the total number of
observations or the sample size.
A beta of less than 1 means that the security will be less volatile than the market.
A beta of greater than 1 indicates that the security's price will be more volatile than
the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile
than the market.