Bloomberg Instruction and Reference Guides

**B****e****ta**** (β)** is a measure of volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole. (Most people use the S&P 500 Index to represent the market.)

Beta is also a measure of the covariance of a stock with the market. It is calculated using regression analysis.

- A beta of 1 indicates that the security's price is expected to move
**exactly with**the market. - A beta greater than 1 indicates that the security's price is expected to be
**more volatile**than the market. - A beta of less than 1 indicates that the security's price is expected to be
**less volatile**than the market.

You can think of beta as the tendency of a security's returns to respond to swings in the market. For example, if a stock's beta is 1.2, then it is theoretically 20% more volatile than the market.

**Alpha:**

The point of intersection with the y-axis.

**R2:**The coefficient of determination (r-squared). This is
the percentage (in decimal form) of variance in the dependent variable
(the stock) that can be explained by the independent variable (the
index).

**Standard Deviation of Error:**

The degree to which an individual probability value varies from the distribution mean.

**Standard Error of Beta:**

A 67% confidence level (or one standard deviation from the mean) that this: Actual Beta = Raw Beta +/- the standard error

**Number of Points:**

Indicates the number of observations used to calculate beta (the more, the better).

Enter this command to look up the beta of a stock:

<ticker symbol> **<EQUITY> **BETA **<GO>**

**Example**: The screenshot shows the result for the beta of Goldman Sachs.

GS **<EQUITY> **BETA **<GO>**

Using the default settings, Bloomberg performs a regression of the historical trading prices of the stock against the S&P 500 (SPX) using weekly data over a two-year period. Depending on the security, you can often find data for the past 20-25 years!

The graph above shows the regression plotted. The independent variable (the index) is on the x-axis and the dependent variable (the stock price) is on the y-axis. The latest observation is shown by a flashing red dot.

The beta is leveraged if the firm has had long-term debt on its balance sheet for the past two fiscal years. You can check to see if the firm has long-term debt by using the command:

<ticker symbol> **<EQUITY>** **DES9**** ****<GO>**

Bloomberg reports both the Adjusted Beta and Raw Beta. The adjusted beta is an estimate of a security's future beta. It uses the historical data of the stock, but assumes that a security’s beta moves toward the market average over time. The formula is as follows:

**Adjusted beta = (.67) * Raw beta + (.33) * 1.0**

When evaluating the different options for finding beta, you may be wondering: **Which one is right?**

There is no right answer and there are several different methods to calculate beta. You must be aware of how the different resources calculate beta and decide which one is right for you.

The following list highlights some of the major differences:

**Index Used:**- Bloomberg uses the S&P 500 Index as the independent variable.
- Value Line uses the NYSE Index as the independent variable.

**Time Frame:**- The default setting for Bloomberg sets the time frame for the data to two years, but can be changed to a desired range.
- Value Line use five years worth of data and is updated quarterly.

**Calculation Method:**- Bloomberg performs a regression on the weekly prices for the stock and the index in a similar way that Excel would.
- Value Line also performs a regression but does not give you detailed results about the data.

**Historical Beta vs. Fundamental Beta:**- When looking for a
**historical beta**of a stock, you can use Bloomberg, or Value Line. In Bloomberg, you would change the specified date range, however you may not be able to go as far back as you desire. - The historical beta of a stock comes the regression of the market's historical excess returns against the security's historical excess returns.
- The fundamental beta of a stock comes from a statistical model that measures risk using price as well as other market-related and financial data.

- When looking for a