Beta Calculation
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Transcript of Beta Calculation
BETA CALCULATION
Contents
Meaning of various componentsCompany profileComparison of companiesConclusion
Security Analysis
Return
Reward for undertaking investment
Measurement of a historical return
Components of a Return: Periodic Return Capital Gain/Loss
Cont… Total Return= Dividend+ (P1- P0)
P0 Where, P1= Ending Price of the
Investment P0= Beginning price
Rate of Return= Total Return * 100
Measuring historical risk
Measures of a risk are variance or standard deviation
n
Variance= Σ (Ri – R ) / n-1
i=1 Standard Deviation = ( Variance)
1/2
2_
Cont…
Where, Ri = return from stock in period
( i= 1, 2, …….., n) R = arithmetic return n = number of periods
Rate of Return Ri=Do+(P1-Po)/ Po
_
covariance
Changing pattern of securities
Positive Covariance
Negative Covariance
Zero Covariance
Selection of Securities of 3 Scrips
State Bank Of India
Bank Of India
ICICI Bank
Nifty
NIFTY
NIFTY 50 - A colloquial term for the strong earning blue chip stocks on the New York Stock Exchange in the 1970s
S&P CNX NIFTY - An index for large cap stocks on the National Stock Exchange of India
State Bank Of India (SBI)
Largest State-owned Banking & Financial Service in India.
Founded in 1955Revenue - $28.212 bn Profits $2.4732 bn Total Assets $323.04 bnTotal Equity $18.519 bn
Date Open Price Close Price Dividend Rate of Return
31st March 2005 654.8 12.531st March 2006 670.1 968.5 14 46.6131st March 2007 983.35 994.45 14 2.5531st March 2008 930.5 1600.25 21.5 74.2831st March 2009 1623.2 1067.1 29 -32.4631st March 2010 1077.45 2078.2 30 95.64
186.62
SBIRi - E(Ri) Rm - E(Rm)
[Ri - E(Ri) ]*[Rm - E(Rm)]
[Rm - E(Rm)]2
-140.01 -73.6210307.53 5419.90
-184.07 -128.4523643.79 16499.40
-112.34 -116.8013121.31 13642.24
-219.08 -176.9538766.21 31311.30
-90.98 -67.156109.31 4509.12
91948.15 71381.96
Var(m)=[Rm- E(Rm)2]/n-1 = 14276.39Cov(Ri,Rm)={[Ri - E(Ri)]*[Ri - E(Rim)]}/n-1 = 18389.63 Beta=Cov(Ri,Rm) / Var(m) =
1.28
BANK OF INDIA (BOI)
Founded – 1906State-owned commercial Bamk4th Largest Bank – 3216 branches
Date Open Price Close Price Dividend Rate of Return
31st March 2005 103.65 Rs031st March 2006 105.85 133.55 Rs2 28.058531st March 2007 132.85 167.8 Rs1.5 27.436931st March 2008 150.2 253.25 Rs4 71.271631st March 2009 259.9 219.4 Rs8 -12.504831st March 2010 222.9 340.25 Rs7 55.7873
170.0495
BOIRi - E(Ri) Rm - E(Rm)
[Ri - E(Ri) ]*[Rm - E(Rm)]
[Rm - E(Rm)]2
-141.99 -73.6210453.30 5419.90
-142.61 -128.4518318.25 16499.40
-98.77 -116.8011536.33 13642.24
-182.55 -176.9532302.22 31311.30
-114.26 -67.157672.55 4509.12
80282.65 71381.96
Var(m)=[Rm- E(Rm)2]/n-1 = 14276.39
Cov(Ri,Rm)={[Ri - E(Ri)]*[Ri - E(Rim)]}/n-1 = 16056.53Beta=Cov(Ri,Rm) / Var(m) =
1.12
Founded – 1955Major banking & financial services Revenue Rs.59,599.77 cr (US$12.93 bn)ProfitRs.4,843.41 cr (US$1.05 bn) Total assetsUS$ 100.10 bn
Date Open Price Close Price Dividend Rate of Return
31st March 2005 392.8 Rs8.531st March 2006 406.05 589.05 Rs8.5 47.161631st March 2007 604 853.35 Rs10 42.938731st March 2008 803.95 769.4 Rs11 -2.929231st March 2009 757.75 332.8 Rs11 -54.628831st March 2010 349.35 952.5 Rs12 176.0841
208.6264
ICICIRi - E(Ri) Rm - E(Rm)
[Ri - E(Ri) ]*[Rm - E(Rm)]
[Rm - E(Rm)]2
-161.46 -73.6211886.68 5419.90
-165.68 -128.4521281.59 16499.40
-211.55 -116.8024709.04 13642.24
-263.25 -176.9546582.08 31311.30
-32.54 -67.152185.06 4509.12
106644.45 71381.96Var(m)=[Rm- E(Rm)2]/n-1 = 14276.39
Cov(Ri,Rm)={[Ri - E(Ri)]*[Ri - E(Rim)]}/n-1 = 21328.89 Beta=Cov(Ri,Rm) / Var(m) =
1.49
Shareholders Holdings Patterns
Particulars SBI ICICI BOI
Promoters 59.41% 0% 64.47%Bank, FI & Insurance 13.11% 17.49% 11.50%FII 10.11% 37.87% 14%Mutual Funds &UTI 4.35% 6.25% 1.61%Private Corporate 3.11% 2.62% 1.81%NRIs 0.12% 0.8% 0.49%Govt. /Employee 0.02% 0.08% 0%General Public 6.11% 5.78% 6.11%Other 3.66% 29.1% 0%
Beta
Most popular indicators of riskKey component for CAPM which is used to
calculate cost of equity
• β = Cov (ra, rp) Var (rp)The market has a beta value of 1.0 &
individual stocks are ranked according to how much they deviate from the market
If β >1, stock swings more than marketIf β <1, stock swings less than market
SBI ICICI BOI
Covariance 18389.63 21328.89 16056.53
Variance 14276.39 14276.39 14276.39
BETA 1.28 1.49 1.12
Interpretation
All 3 stocks have beta value greater than 1.0Out of 3 scrips, ICICI has performed very
well
Thank You