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Beta is calculated using historical price data, asset returns, market index returns, covariance, and variance. It quantifies an asset’s risk relative to the market. Step 3: Calculate Covariance Determine the covariance between the asset returns and the market returns.
The portfolio return variance is calculated by multiplying the squared weight of each asset by its variance and adding two times the weight of each asset multiplied by the covariance of the asset pair. Beta is the risk statistic used to compare the portfolio’s exposure to systematicrisk to that of the market.
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