Bloomberg Terminal Guide
Beta
What is Beta??
Beta (β) is a measure of volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole. (Most people use the S&P 500 Index to represent the market.)
Beta is also a measure of the covariance of a stock with the market. It is calculated using regression analysis.
- A beta of 1 indicates that the security's price is expected to move exactly with the market.
- A beta greater than 1 indicates that the security's price is expected to be more volatile than the market.
- A beta of less than 1 indicates that the security's price is expected to be less volatile than the market.
You can think of beta as the tendency of a security's returns to respond to swings in the market. For example, if a stock's beta is 1.2, then it is theoretically 20% more volatile than the market.
Finding Beta of a Stock
Enter this command to look up the beta of a stock:
<ticker symbol> <EQUITY> BETA <GO>
Example: The screenshot shows the result for the beta of Goldman Sachs.
GS <EQUITY> BETA <GO>
Using the default settings, Bloomberg performs a regression of the historical trading prices of the stock against the S&P 500 (SPX) using weekly data over a two-year period. Depending on the security, you can often find data for the past 20-25 years!
The graph above shows the regression plotted. The independent variable (the index) is on the x-axis and the dependent variable (the stock price) is on the y-axis. The latest observation is shown by a flashing red dot.
The beta is leveraged if the firm has had long-term debt on its balance sheet for the past two fiscal years. You can check to see if the firm has long-term debt by using the command:
<ticker symbol> <EQUITY> DES9 <GO>
Bloomberg reports both the Adjusted Beta and Raw Beta. The adjusted beta is an estimate of a security's future beta. It uses the historical data of the stock, but assumes that a security’s beta moves toward the market average over time. The formula is as follows:
Adjusted beta = (.67) * Raw beta + (.33) * 1.0