Calculating Beta...
Hi I need help... I need to calculate Beta and Here is what is given. Please if you can explain how...
Here's the given
X's StdDev of monthly return = 12% with a 0.80 market correlation.
The StdDev of Market monthly return is 6%
To calculate the Beta, you need two pieces of information:
1. The standard deviation of the monthly returns of the asset you want to calculate the Beta for.
2. The correlation coefficient between the asset's returns and the returns of the overall market.
The formula to calculate Beta is:
Beta = (Correlation coefficient * Asset's standard deviation) / Market's standard deviation
In this case, you've been given the standard deviation of the asset's monthly returns as 12% and the market correlation as 0.80. The standard deviation of the market's monthly returns is given as 6%.
Now, let's substitute the values into the formula:
Beta = (0.80 * 12%) / 6%
To calculate this, we need to convert the percentages to decimal form:
Beta = (0.80 * 0.12) / 0.06
Now, we can solve this equation to find the value of Beta:
Beta = 0.096 / 0.06
Beta = 1.6
Therefore, the calculated Beta for the asset is 1.6.