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oem7110  
#1 Posted : Friday, September 13, 2013 1:05:22 AM(UTC)
oem7110

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Posts: 120

In finance, the beta (β) of a stock or portfolio is a number describing the correlated volatility of an asset in relation to the volatility of the benchmark that the asset is being compared to. Source : http://en.wikipedia.org/wiki/Beta_(finance)

Referring to above source, Beta value measures a stock's correlated volatility compared to the market as a whole, the volatility is measured by the standard deviation of historical prices, which essentially represents how much they fluctuate relative to the price average.

I would like to know to determine Beta in Metastock, and to determine the Beta for A comparing with B.

Does anyone have any suggestions?

Thanks in advance for any suggestions :>

jonuk76  
#2 Posted : Sunday, September 15, 2013 6:57:20 AM(UTC)
jonuk76

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There's a custom formula supplied by default which does this. It has instructions within the formula, as per below.

Code:
{This formula calculates Beta which is a measure of volatility of one security against another. This is typically used to measure the volatility of a stock against an index like the S&P 500. A value greater than one indicates the stock is more volatile than the index. 

To plot Beta:

1. Open a chart of the desired security.
2. Drag the price plot of the index your are comparing, into the chart of the security.
3. Drag this custom indicator from the QuickList and drop it onto the price plot of the index.

Note, this formula is set to calculate beta over 21 periods. To change the time periods replace each instance of 21 in the formula with the desired number of periods.}

(( 21 * Sum( ROC( CLOSE,1,%) * ROC( INDICATOR,1,%),21))-
( Sum( ROC( CLOSE,1,%),21) * Sum( ROC( INDICATOR,1,%), 21))) 
/ 
(( 21 * Sum( Pwr( ROC( INDICATOR,1,%),2),21)) - 
Pwr( Sum( ROC( INDICATOR,1,%),21),2))

oem7110  
#3 Posted : Sunday, September 15, 2013 7:48:22 AM(UTC)
oem7110

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Source : http://en.wikipedia.org/wiki/Beta_(finance)

=COVAR(C1:C21,D1:D21)/VARP(D1:D21)

Referring to above reference, I would like to know whether the formula for Metastock is based on this theory or not. It seems to me that there are many different approach to determine Beta, someone tells me that it should be 2 different Beta, one is for uptrend, and the other one is for downtrend, but there is only one Beta for Metastock.

Do you have any suggestions?

Thanks you very much for any suggestions :>

jonuk76  
#4 Posted : Sunday, September 15, 2013 11:04:24 AM(UTC)
jonuk76

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As far as I know, uptrend or downtrend does not matter with regards to a standard beta calculation.

Beta can be thought of as the sensitivity of a security to changes in the underlying index. In simple terms, a high beta stock should tend to rise more than it's index in an up market and drop more than the index in a down market. A low beta stock is expected to be less sensitive to movements in the index. I think the standard theory is that high beta stocks tend to be riskier but have the potential for better returns over the long term. But I understand that there has been some research that indicates the contrary, that high beta stocks, while carrying more risk tend to also underperform over the long term.

I can't really say whether the MS formula is accurate to the theory or not - just don't know enough about the maths involved. However, in MS Xenith there is a regression analysis calculator which will work out beta relative any benchmark you choose over any period. Having tested it on a few examples, the Beta formula in Metastock comes up with broadly the same numbers as the calculator in Xenith, when the same inputs are used. So it gives me a degree of confidence that what the formula in Metastock comes up with is correct.

Here's an example. Hartford Financial (HIG) relative to the S&P 500 index, using 252 days as the calculation period. The calculated Beta by the Xenith calculator is 1.6944. The calculated Beta by the MS formula is 1.69851.

UserPostedImage

Black candles = Stock, Blue line = S&P 500, Red line (and left scale) = Beta
UserPostedImage

Or the same exercise for Pepsico (PEP). This is a much lower beta stock, and the calculated Beta is 0.5741 by Xenith, and 0.57388 by the Metastock formula.

UserPostedImage
UserPostedImage
kosmicmisfit  
#5 Posted : Sunday, September 15, 2013 12:18:26 PM(UTC)
kosmicmisfit

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I would like to create an exploration based on the custom formula for the beta. The index I would be using is S&P 500.

Can you let me know what substitutions need to be made to make it work

thanks

oem7110  
#6 Posted : Sunday, September 15, 2013 3:16:15 PM(UTC)
oem7110

Rank: Advanced Member

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Posts: 120

jonuk76 wrote:
As far as I know, uptrend or downtrend does not matter with regards to a standard beta calculation.

Beta can be thought of as the sensitivity of a security to changes in the underlying index. In simple terms, a high beta stock should tend to rise more than it's index in an up market and drop more than the index in a down market. A low beta stock is expected to be less sensitive to movements in the index. I think the standard theory is that high beta stocks tend to be riskier but have the potential for better returns over the long term. But I understand that there has been some research that indicates the contrary, that high beta stocks, while carrying more risk tend to also underperform over the long term.

In general, your assumption is "Yes", but when you look at the details, not all stocks have strong correlation with benchmark, such as penny stock, the beta for uptrend and downtrend could be a hugh difference for comparing their performances. Do you agree with this point?

Would ROC(C,1,%) be the most accepted items to be used on measuring Beta?

Furthermore, could you please tell me where to access MS Xenith's regression analysis calculator?

Do you have any suggestions?

Thanks you very much for any suggestions :>

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