Can somebody please confirm if I have the equation right or wrong. I seem to think I may have it slightly wrong. Thanks (covariance X st dev of asset) /st dev of market
svgleeson Wrote: ------------------------------------------------------- > Can somebody please confirm if I have the equation > right or wrong. I seem to think I may have it > slightly wrong. Thanks > > > (covariance X st dev of asset) /st dev of market Covariance/variance of market From this, you can derive: Correlation x sd of stock/sd of market Remember, beta has no units. Covariance has same units as variance. Correlation has no units. So if you have covariance in numerator, you need variance in denominator.
Amazing…thankyou Anish
you can also get it frim these two equatiosn: 1) beta = covariance (asset, market)/variance(market) and 2) Covariance (asset, market) = correlation (asset, market) * std deviatio (asset) * std Deviation(market) then substitute (2) into the numerator of equation (1). The standard deviations of the market in numerator ant denominator cancel, and you’re left with beta = correlation x (std. Deviation of asset/ std deviation of market). as intuition, the beta depends on the correlation between the asset and the market and on how volatile the asset is relative to the market (i.e. the ratio of the std. deviations).