The Adjusted Beta Calculator is a tool used by investors and financial analysts to estimate the future beta of a stock. Beta is a measure of a stock’s volatility in relation to the overall market. The adjusted beta provides a more accurate prediction of a stock’s future risk by blending the stock’s historical beta with the market beta. This calculation helps in making informed investment decisions by predicting how a stock is likely to behave in the future compared to the market.
Formula of Adjusted Beta Calculator
The Adjusted Beta is used to estimate a stock’s future beta. This adjusted beta is a weighted average of the stock’s historical beta and the market beta of 1. The formula for Adjusted Beta is:
where:
- Adjusted Beta is the adjusted beta.
- Historical Beta is the historical beta of the stock.
Let’s break down the formula in more detail for accurate calculation:
- Multiply the historical beta (Historical Beta) by 0.67.
- Multiply the market beta (which is 1) by 0.33.
- Add the results from steps 1 and 2 to get the adjusted beta.
Practical Table for Common Calculations
To make the process easier, here is a table with general terms that people commonly search for and use. This table provides a quick reference to help investors without the need to calculate each time.
| Historical Beta | Adjusted Beta |
|---|---|
| 0.5 | 0.67 * 0.5 + 0.33 * 1 = 0.67 |
| 1.0 | 0.67 * 1.0 + 0.33 * 1 = 1.0 |
| 1.5 | 0.67 * 1.5 + 0.33 * 1 = 1.33 |
Example of Adjusted Beta Calculator
Let’s consider an example to illustrate how the Adjusted Beta Calculator works.
Suppose a stock has a historical beta of 1.2. Using the formula:
Adjusted Beta = 0.67 * 1.2 + 0.33 * 1 Adjusted Beta = 0.804 + 0.33 Adjusted Beta = 1.134
So, the adjusted beta for this stock would be 1.134.
Most Common FAQs
The calculator provides a good estimate based on the inputs provided. However, individual stock behavior may vary, so it’s important to use this as a guideline rather than an absolute prediction.
Yes, this calculator can be used for all stocks that have a historical beta. Simply adjust the variables to match the historical beta of the stock.
If your stock has a negative historical beta, the formula can still be use. However, a negative beta indicates that the stock moves inversely to the market, which is less common and may require additional analysis.