How to calculate the weighted average beta of a portfolio

Written by carter mcbride | 13/05/2017

Every stock you own has a beta score. The beta score changes as the volatility of the stock changes compared to the volatility of the market. A beta score of one means your stock moves with the market. In order to calculate the weighted average of your beta, you need to know how much money you have in each stock and the beta for each stock. The weight of the stock will be the amount of money invested in the stock divided by the total amount invested.

Write out the beta of each stock and the amount you have invested in each stock. For example, assume you own £650 worth of Stock A that has a beta of 2 and £3,250 of Stock B that has a beta of 1.3.

Add together the amounts invested in each stock to find the total invested. Divide each stock investment by the total invested to find the stock's weight. In the previous example, £650 plus £3,250 equals £3,900. Stock A's weight is £650 divided by £3,900 for 0.1667 and Stock B is £3,250 divided by £3,900 for a weight of 0.8333.

Multiply the stock beta by its weight to find the weighted beta. In the example, 2 times 0.1667 equals 0.3334 and 1.3 times 0.8333 equals 1.083.

Add together the weighted betas to find the weighted average beta of the portfolio. In the example, 0.3334 plus 1.083 equals 1.4164.

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