Calculate Unlevered Beta

By Stock Research Pro • July 30th, 2009

The volatility of a stock is measured by its beta which represents the volatility of the stock in relation to the overall market. A stock with a beta value of 1.0 would move in correlation to the market. If the stock has proven to swing more widely than the market over time, its beta value would be greater than 1.0. Less volatile stocks would offer beta values of less than 1.0. Most market observers see high-beta stocks as riskier investments with the potential for greater returns than low-beta stocks. Low-beta stocks are often favored when economic conditions are not favorable.

Beta Explained

Understanding beta can help an investor anticipate how much volatility they might expect from a given stock; it provides a way to quantify the volatility of that stock for a clearer indication. The beta figure is compared against the volatility of the S&P 500 index during the past five years. If, during that time, the index saw gains of 7%, a stock with a beta value of 1.0 would also have gained 7%. If the S&P saw a 7% decline in that time, the beta 1.0 stock would experience that same 7% decrease.

Stocks with beta values in excess of 1.0 tend to be view as more risky. So a stock with a beta value of 2.0 would see a 14% when the S&P 500 lost only 7%. Therefore, low-beta stocks are seen as defensive and often a good idea during economic downturns. That said, past behavior does not provide any guarantee as to future performance, so beta is used simply as a way to understand the tendencies the stock has displayed in the past.

What is Unlevered Beta?

Unlevered Beta is the beta of a company that does not have any debt. The measure compares the risk on an unlevered company to that of the market to provide a measure of the systematic risk of that company to that of the market.

For the calculation below,click here to launch the Stock Research Pro Debt-to-Equity ratio calculator.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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