Stock or Fund Beta Definition & Application Wiki

Stock or Fund Beta Definition & Application Wiki

Last Updated by WikiWealth

Stock Beta Data

Short Definition

The regression of stock market returns versus the return of the market (also called the market beta). Beta should be forward looking for valuation purposes, because an investment's value is the discounted future cash flow.

Fund beta works the same way as a stock beta. Generally, funds have betas that fall in line with the index they track or the market in general. Since funds are a combination of many different investments, some investments may increase in price while others decrease. This divergence of performance means the fund will have lower risk, due to diversification. WikiWealth shows the beta for each fund and stock.

  • Unlevered Beta: is the beta of the target company minus the affects of debt leverage.
    • Equation: Beta (market) equals beta (observed in the stock market) divided by [1 + (debt/equity) times (1 minus taxes)]
  • Relevered Beta: is the beta of the target company plus the affects of debt leverage.
    • Beta (unlevered) equals beta (observed in the stock market) times [1 + (debt/equity) times (1 minus taxes)]

Long Definition

See Dictionary Terms

See Academic Resources

Source: http://en.wikipedia.org/wiki/Beta_coefficient