1. What is Weighted Average Beta?

Weighted average beta (β_avg) is a measure of the systematic risk of a portfolio, calculated as the sum of the products of each asset's weight in the portfolio and its individual beta. It represents the portfolio's sensitivity to market movements.

2. How Does the Calculator Work?

The calculator uses the weighted average beta formula:

Where:

• \( w_i \) — Weight of asset i in the portfolio
• \( \beta_i \) — Beta coefficient of asset i
• \( n \) — Number of assets in the portfolio

Explanation: The formula calculates the portfolio's overall beta by weighting each asset's beta by its proportion in the portfolio.

3. Importance of Weighted Average Beta

Details: Weighted average beta is crucial for portfolio management, risk assessment, and capital asset pricing model (CAPM) calculations. It helps investors understand how their portfolio might respond to market fluctuations.

4. Using the Calculator

Tips: Enter weights and betas as comma-separated values. Ensure both lists have the same number of elements. Weights should sum to 1 (or 100%) for accurate portfolio representation.

5. Frequently Asked Questions (FAQ)

Q1: What does a beta greater than 1 indicate?
A: A beta greater than 1 indicates the asset/portfolio is more volatile than the market. It tends to amplify market movements.

Q2: What does a beta less than 1 indicate?
A: A beta less than 1 indicates the asset/portfolio is less volatile than the market. It tends to dampen market movements.

Q3: Can beta be negative?
A: Yes, negative beta indicates an inverse relationship with the market. When the market goes up, the asset tends to go down, and vice versa.

Q4: How are weights determined in a portfolio?
A: Weights are typically based on the market value of each asset relative to the total portfolio value.

Q5: What are the limitations of using beta?
A: Beta assumes past price relationships will continue, doesn't account for new information, and may not fully capture all risks, particularly unsystematic risk.