# How to Calculate Portfolio Beta

In this article, we give a step-by-step breakdown of how to calculate portfolio beta.

## Understanding Beta

**Beta** measures the volatility of a portfolio compared to the overall market.

- A beta of 1 means the portfolio moves in line with the market.
- A beta greater than 1 indicates more volatility than the market (higher risk, higher potential return).
- A beta less than 1 means less volatility than the market (lower risk, lower potential return).

## Formula for Calculating Portfolio Beta

To calculate the beta of a portfolio, you use the weighted average of the betas of the individual securities within the portfolio.

The formula is:

Portfolio Beta= ∑(wi*βi)

Where:

= the weight of the*w**i**i*th asset in the portfolio (calculated as the value of the asset divided by the total value of the portfolio)= the beta of the*Β**i*th asset- The summation ∑ runs over all assets in the portfolio

## Steps to Calculate Portfolio Beta

### Identify the Assets in the Portfolio

List all the assets you have in your portfolio.

### Find the Beta for Each Asset

Look up the beta for each asset.

This information can often be found on financial news websites, investment research tools, or from a broker.

### Determine the Weight of Each Asset

Calculate the weight of each asset in the portfolio.

This is done by dividing the market value of each asset by the total market value of the portfolio.

### Calculate the Weighted Beta for Each Asset

Multiply the beta of each asset by its respective weight in the portfolio.

### Sum the Weighted Betas

Add up all the weighted betas calculated in step 4.

The result is the beta of the portfolio.

## Example

Suppose a portfolio consists of three stocks:

**Stock A**: $10,000, Beta = 1.2**Stock B**: $15,000, Beta = 0.9**Stock C**: $25,000, Beta = 1.5

Total value of the portfolio = $10,000 + $15,000 + $25,000 = $50,000

### Calculate Weights

- Weight of A = $10,000 / $50,000 = 0.2
- Weight of B = $15,000 / $50,000 = 0.3
- Weight of C = $25,000 / $50,000 = 0.5

### Calculate Weighted Betas

- Weighted Beta of A = 0.2 * 1.2 = 0.24
- Weighted Beta of B = 0.3 * 0.9 = 0.27
- Weighted Beta of C = 0.5 * 1.5 = 0.75

### Sum the Weighted Betas

- Portfolio Beta = 0.24 + 0.27 + 0.75 = 1.26

This portfolio has a beta of 1.26, indicating it’s expected to be 26% more volatile than the market.

## Notes

**Time Period –**The beta of stocks and portfolios can change over time. It’s important to use data points covering a period relevant to your investment strategy.**Online Calculators –**There are several online calculators specifically for portfolio beta that can automate the process for you.**Diversification –**Even with a high portfolio beta, diversification can help manage overall risk.