How to calculate rolling beta of a stock?

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by moriah , in category: Technical Analysis , a month ago

How to calculate rolling beta of a stock?

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1 answer

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by peter , a month 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.