Sharpe Ratio

Beta

Jensen's Alpha

Unit Root

Augumented Dickey-Fuller (ADF) Test

Weiner Process

The Random Walk of Stock Market

I always tend to calculate the indicators after learning their concepts. This not only gives me a leverage of understanding but also I end up tuning my own indicators.

Beta is a coefficient is a measure of its volatility over time compared to a market benchmark. Market benchmark has a beta of 1. Shortly, if volatility is 1.5 it means it is 50% more volatile than market. So for US Stocks Market benchmark is S&P 500.

What is the market benchmark for India? There are two major market benchmarks here –

NSE and SENSEX.

While searching for a meticulously calculated version of a financial metric, I stumbled upon a suggestion that led me to Reuters’ website, where I found the beta value for Asian Paints. Here is beta of Asian Paints.

On the site, ‘ASPN.NS’ denoted Asian Paints listed on the NSE, and ‘ASPN.BO’ represented its listing on the BSE. Interestingly, both beta values were identical. However, what remained conspicuously absent was any information about the time period chosen for calculating this crucial metric. The standard timeframe for beta calculation was elusive, not just on the website but across the internet. It left me in a state of futile speculation. My quest was specifically for beta data related to my stock, CUPID.

I got served with coconuts! I read it is easy to calculate beta in Google Finance. Intriguing, isn’t it? I embarked on creating a Google Sheet and typed in the following command:

**GOOGLEFINANCE(“GOOG”, “price”, DATE(2014,1,1), DATE(2014,12,31), “DAILY”)**

And just like that, it worked like a charm. Now, the attribute ‘beta’ was supposed to function similarly:

**GOOGLEFINANCE(“CUPID”, “beta”)**

But to my dismay, it consistently returned a ‘#N/A’ error. It was as if I was being taunted. However, upon closer examination, I realized that something was fundamentally amiss. Even it is shown #N/A in Google Finance’s documentation!!

For the attribute beta, there is a parameter. For how many years you are taking the data? Since the time of the stock IPO? It doesn’t make any sense at all in such case.

In my quest for precision, I opted for the past 12 months as the chosen timeframe. It proved to be more efficient and optimized than the three-year data duration favored by many traders. My decisions have always been rooted in data, and yes, I had rigorously tested and back-tested several strategies involving beta, concluding that a 12-month dataset was the most reliable.

Then I came across another shitty thing from Google Finance. Some day’s data are missing for the stocks. You can see the problem here in my Google sheet. (BOM:530843 is Cupid)

This discrepancy typically arises when a stock hasn’t been listed on either the NSE or the BSE. In such cases, creative workarounds become necessary.

But why should you bother calculating beta when you have the option to use it in your strategy? After all, there are other variables you can leverage when you perform the calculations yourself, much like my approach to determining the ideal timeframe. Calculating an indicator from scratch fosters a profound understanding and unwavering confidence in its applicability.

I optimized it further.

Look at the Daily Change field. That doesn’t come from Google Finance. I did a conditional statement – if there is something in the date field then only show this field and calculate.

Now I achieved the position where I have to just type the stock’s name and the beta will come out.

Both Betas. Taking Nifty and Sensex as their Market benchmark. In case you need the beta’s formula –

You can make a clone to your Google Drive. It works like a charm. If you see any mistake, Give me a shout-out.

When the surgical strike happened this year in Kashmir on 29th Sep 2016, the next day was black Friday for me. I got my first losing streak. My portfolio tanked by huge drawdown, the beta indicator came into my mind. I developed my own indicator which is called Portfolio Beta.

I will tell how to do it to make you uneasy rather than sharing that indicator and I will certainly love to help if you stuck anywhere doing so.

**Here is how it works**

You need to put which stock you have bought and how many shares. It shows beta of your portfolio by taking weighted value.

Let me explain in layman’s term – As per last sheet you see PC Jewellers right?

Suppose you buy 10 PC Jewellers stock and 10 Cupid stock and 1 DHFL stock then it will make a stock named Portfolio whose value is 10 PC Jewellers + 10 Cupid + 1 DHFL and whose daily change I leave up to you.

This is what I consider in my strategy of designing in some of my fundamental portfolios of which I deal with very large volume.

Mathematically, in my strategy, probability of getting -5% drawdown is 12% which happened at the time of demonetization few days ago. I still have that screenshot.

If I didn’t know how to calculate beta, I’d have tanked a hefty drawdown.

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