Covariance of stock and index returns is 0.003, variance of index returns is 0.004. Calculate the beta1 point0.751.312
Question
Covariance of stock and index returns is 0.003, variance of index returns is 0.004. Calculate the beta1 point0.751.312
Solution
To calculate the beta, we need to use the formula:
Beta = Covariance(stock returns, index returns) / Variance(index returns)
Given that the covariance of stock and index returns is 0.003 and the variance of index returns is 0.004, we can substitute these values into the formula:
Beta = 0.003 / 0.004
Simplifying the calculation:
Beta = 0.75
Therefore, the beta of the stock is 0.75.
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