Question

The standard deviation of a stock's annual returns is 36.8%. The standard deviation of market returns is 25.4%. If the correlation between the returns of the stock and the market is 0.2, what is this stock's beta? Round to two decimal places.

Answer 1

Formula for calculating beta of a security i is :

where,

Ri = Return on security i

Rm = Return on market

Standard deviation of returns on security i

Standard deviation on market returns

Applying above equation to the given problem:

(rounded upto 2 decimal points)

Thus , Beta of the given security is 0.29.