How to get beta
Hi monkeys, I've been trying to find a clear answer for this question but I couldn't find one online. The question is, how do we get a beta for companies when calculating CAPM? I know for private companies, we look at beta of comparable companies, unlever each one, and usually look at their median. But I only see this generic answer and many guides/online sources reiterate or don't explicitly say how to get beta for public companies.
They have their own historical beta, and is more precise in a sense that every company's specific profiles and features are different, thus its own historical beta would reflect its current beta better. But some say looking at its comparable companies' betas is safer because it gives you greater amount of data, thus safer and more reflective of the market sentiment. Could anyone clarify this confusion? Thanks
I don’t know if the question is completely serious. If so, levered betas are usually available through Bloomberg or even yahoo finance. Then you need to unlever them, take the mean of the peer group you choose and then relever the beta again.
I don't get what you mean by if the question is completely serious. Did you read my question? I asked if it's a must to go through the process of looking up levered betas of comparable companies, unlever them, and take mean/median of them, and relever it, even for public companies that have their own historical betas.
bluelion, I think the norm is to look at comps and go through the process lifeboat described. Additionally, you can find a company's beta by looking at its historical returns. Download the company's daily adjusted returns as well as the S&P 500's daily adjusted returns and run the following regression in excel, R, stata, etc.: Rs = B0 + B1(Rm).
Step 1 - Calculate the daily returns (for example, the excel formula for returns on day 2 would be =ln(day 2/day 1) for the company and the market Step 2 - Run the regression (in excel it's under data, data analysis, then select regression. For the dependent variable (Input Y Range in excel and Rs in the regression formula) select the returns for the company. For the independent variable (input X Range and Rm in the regression formula) select the returns for the market. Run the regression. Step 3 - You should see a regression output. B0 indicates the intercept and B1 indicated the beta you're looking for (look at the coefficient value).
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