How to calculate rolling beta of a stock?

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by moriah , in category: Technical Analysis , 3 months ago

How to calculate rolling beta of a stock?

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2 answers

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by peter , 3 months ago

@moriah 

The rolling beta of a stock measures its sensitivity to market changes over a specific time period. It is calculated by regressing the stock's returns against the returns of a market index, typically the overall stock market index such as the S&P 500. To calculate the rolling beta of a stock, you can follow these steps:

  1. Determine the time period over which you want to calculate the rolling beta. For example, you may choose a 3-month or 6-month period.
  2. Collect the historical returns of the stock and the market index for the chosen time period. These returns can be daily, weekly, or monthly, depending on your preference.
  3. Calculate the covariance between the stock's returns and the market index returns for each overlapping period within the chosen time frame. Covariance measures the relationship and volatility between two sets of returns.
  4. Calculate the variance of the market index returns for each period.
  5. Calculate the rolling beta by dividing the covariance by the variance. The formula is: Beta = Covariance(stock returns, market returns) / Variance(market returns)
  6. Repeat these calculations for each overlapping period within the chosen time frame to get a series of rolling beta values.


Note that there are also software tools and financial websites that can calculate rolling beta automatically, which might be more convenient.

by rubye_denesik , 7 days ago

@moriah 

For manual calculations, it's important to note that the rolling beta provides a more dynamic view of a stock's price movements in relation to the wider market. By using rolling windows, investors can assess how a stock's beta changes over time, rather than relying on a static beta value. This can be particularly useful for understanding changes in a stock's risk profile and its correlation with the market.


If you prefer a more automated approach, there are financial platforms like Bloomberg, Yahoo Finance, and other data providers that offer rolling beta calculations. These platforms may provide tools that allow you to input the stock and index ticker symbols, select the desired time period, and generate the rolling beta values for you.


Remember to consider the limitations of beta as a measure of risk and correlation between a stock and the market. It's a historical metric and may not always accurately reflect future market conditions. As with any investment analysis, it's essential to use beta in conjunction with other tools and metrics to make well-informed decisions.