Illustration of Method Used to Calculate Beta

Beta is an asset’s volatility relative to “the market.” An asset with a beta coefficient of 1.0
has tended to experience up and down movements of roughly the same magnitude as
the market. One with a beta of 1.2 has tended to gain roughly 20% more than the market
during rising periods, and has tended to experience declines 20% more severe than the
market during periods of falling prices. The name “beta” refers to the “b” (the “slope”) in
the linear equation Y= a + bX.
CALCULATION METHODOLOGY:
This method compares an asset’s volatility relative to “the market.” A formula is designed
to create a log-log regression of an asset. This is accomplished by using “log price
relatives” (the natural logarithms of the price relatives).
Factual Data:
Time
Period “Market” % Fund %
1 20 0
2 0 -40
3 40 40
4 30 30
5 -10 -5...