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