So you've learned about what Beta is, and how to use it, but how do you actually calculate Beta for a stock? 🤔

In short, Beta is calculated by comparing how much a stock's returns move up and down in relation to the overall market's ✍️

The official formula is:

Beta = (Covariance of stock’s returns with market’s returns) ➗ (Variance of market’s returns)

If you don't know what Covariance and Variance mean, that's okay!

They're both fancy statistics formulas that actually refer to pretty simple concepts 📊

Covariance measures how two things move together 💑

For beta, it's about how the stock’s returns move in relation to the market’s returns.

And variance measures how much one thing moves on its own 🏹

For beta, we look at how much the market's returns move around their average.

So if we go back to our formula:

Beta = how much a stock's returns move in relation to the market's returns DIVIDED BY how much the market's returns move around on their own

Luckily for you, you don't actually need to calculate stocks' Beta on your own -- you can find it in the Bloom app right on the "Risk Rating" section of any stock page!

But it can still be useful to know the formula for Beta to better understand what it's really measuring 📐