How to Use This Calculator
- 1
Enter Risk & Return Data
Select calculation method (CAPM, Regression, or Volatility) and asset type, then input asset return, risk-free rate, market return, asset/market volatility, and correlation coefficient.
- 2
Review Results
See Asset Beta, CAPM Expected Return, and Systematic Risk cards. The Insights panel shows Treynor ratio, volatility ratio, market correlation, market premium, alpha vs CAPM, and calculation method used.
Example Calculation
An analyst calculates the beta of a stock with 12% expected return, 3% risk-free rate, 10% market return, 18% asset volatility, 15% market volatility, and 0.70 correlation using the CAPM method.
Asset Expected Return (%)
12
Risk-Free Rate (%)
3
Market Expected Return (%)
10
Asset Volatility (%)
18
Market Volatility (%)
15
Correlation Coefficient
0.70
Calculation Method
CAPM
Asset Type
Stock
Results
Asset Beta
1.286
CAPM Expected Return
12.00%
Systematic Risk
49.0%
Insights card shows 7.
Tips
1.286 Beta Means 28.6% More Volatile Than the Market
If the market drops 10%, this stock is expected to drop 12.86%. If the market rises 10%, the stock rises 12.86%. To reduce beta to 1.0 (market-neutral), the stock's excess return would need to match the market premium exactly — 7% instead of 9%.
Three Methods Give Three Different Betas — CAPM: 1.286, Regression: 0.840, Volatility: 1.200
CAPM uses returns only (9% excess / 7% premium = 1.286). Regression factors in the 0.70 correlation (0.70 x 1.20 = 0.840). Volatility ignores correlation (18/15 = 1.200). Use CAPM for forward-looking estimates, Regression for historical analysis.
49% Systematic Risk Means Half the Volatility Is Diversifiable
R-squared of 0.49 (correlation² = 0.70²) means only 49% of this stock's variance comes from market movements. The other 51% is idiosyncratic risk that can be eliminated through diversification. A well-diversified portfolio reduces exposure to this company-specific risk.
Treynor Ratio of 7.00 Shows Good Risk-Adjusted Efficiency
Treynor = excess return / beta = 9% / 1.286 = 7.00. Above 4 is good, above 8 is excellent. Increasing the asset return by 1% (to 13%) would raise Treynor to 7.69, while reducing beta to 1.0 would raise it to 9.00.
How Sensitive Is Your Asset to Market Movements?
The Asset Beta Calculator measures systematic risk using three methods — CAPM, Regression, and Volatility.
With a 12% asset return, 3% risk-free rate, and 10% market return, the CAPM beta is 1.286 — indicating the asset is 28.6% more volatile than the market.
Systematic risk is 49.0% (based on 0.70 correlation), meaning about half the asset's variance is market-driven.
Three Beta Calculation Methods
Each method uses different inputs and produces different beta values:
CAPM: β = (Asset Return - Risk-Free Rate) / (Market Return - Risk-Free Rate)
Regression: β = Correlation x (Asset Volatility / Market Volatility)
Volatility: β = Asset Volatility / Market Volatility
Additional metrics:
CAPM Expected Return = Risk-Free Rate + β x Market Premium
Treynor Ratio = (Asset Return - Risk-Free Rate) / β
Systematic Risk = Correlation² x 100
Example: Stock Beta via CAPM
12% asset return, 3% risk-free rate, 10% market return, 18% asset volatility, 15% market volatility, 0.70 correlation:
| Metric | Value | Context |
|---|---|---|
| Asset Beta (CAPM) | 1.286 | Aggressive — 28.6% above market |
| CAPM Expected Return | 12.00% | Matches input (0% alpha) |
| Systematic Risk | 49.0% | Significant market exposure |
| Regression Beta | 0.840 | Conservative — accounts for 0.70 correlation |
| Volatility Beta | 1.200 | Simple ratio — ignores correlation |
| Treynor Ratio | 7.00 | Good risk-adjusted efficiency |
| Volatility Ratio | 1.20x | 20% more volatile than market |
| Market Premium | 7.00% | 10% market - 3% risk-free |
The three methods produce betas ranging from 0.840 to 1.286.
CAPM (1.286) is highest because it assumes the full 9% excess return is compensation for systematic risk.
Regression (0.840) is lowest because it discounts for the 0.70 imperfect correlation — only 70% of the asset's volatility moves with the market.
Why the Methods Disagree
CAPM derives beta purely from returns — it's forward-looking and assumes efficient markets.
Regression incorporates correlation, capturing how tightly the asset actually co-moves with the market.
Volatility is the simplest, comparing raw standard deviations without considering direction.
For this stock, the 0.70 correlation is the key differentiator: it tells us 30% of the asset's volatility is independent of the market, which Regression captures but CAPM and Volatility ignore.
Frequently Asked Questions
What is Asset Beta?
A measure of systematic (market) risk. Beta of 1.286 means the asset is 28.6% more volatile than the market. Beta = 1.0 matches the market, below 1.0 is less volatile, above 1.0 is more volatile. It quantifies how much an asset's returns move with the broader market.
How does CAPM calculate beta?
(Asset Return - Risk-Free Rate) / (Market Return - Risk-Free Rate). With 12% asset, 3% risk-free, 10% market: (12-3)/(10-3) = 9/7 = 1.286. This method derives beta from expected returns rather than historical price data.
When should I use Regression vs CAPM?
Use CAPM when you have forward-looking return estimates. Use Regression when you have historical return data and correlation — it produces 0.840 here because it accounts for the 0.70 correlation (not perfect co-movement). Regression beta is typically lower and more conservative.
What is systematic risk?
Market risk that cannot be diversified away. At 49% (correlation squared), about half this stock's variance comes from market movements. The rest is unsystematic (company-specific) risk. A portfolio of 30+ uncorrelated stocks can eliminate most unsystematic risk.
What does the Treynor Ratio measure?
Excess return per unit of systematic risk: (Asset Return - Risk-Free Rate) / Beta = 9% / 1.286 = 7.00. Unlike the Sharpe Ratio (which uses total volatility), Treynor uses only market risk, making it better for assets held in diversified portfolios.
How does correlation affect beta?
Correlation directly scales the Regression beta: 0.70 x (18/15) = 0.840. With perfect correlation (1.0), Regression beta equals the Volatility beta (1.200). Lower correlation means lower beta — a stock with 0.30 correlation would have Regression beta of just 0.360, despite the same volatility ratio.