### Method 1 – Calculating CAPM Beta Using Excel Formula

- Prepare a dataset containing
**Portfolio Returns**(standard returns) and**Market Returns**data.

- Apply the following formula to
**Portfolio Beta**(CAPM Beta).

`=COVARIANCE.P(C5:C14,D5:D14)/VAR.P(C5:C14)`

We determined the variance of data from range **C5:C14** with the **VAR.P function** and divided the covariance output by the variance output to obtain the CAPM beta.

### Method 2 – Applying the Analysis ToolPak to Calculate CAPM Beta

- Select the
**Data**tab and go to**Data Analysis**.

- Select the
**Regression**option from the**Data Analysis**tab.

- From the
**Regression**tab, enter the reference range for data of**Portfolio Returns**and**Market Returns**in the**Input Y Range**and**Input X Range**sections, respectively. Select the range for output in the**Output Range**section.

- After pressing
**OK**, you will see the various analysis results in the worksheet.**CAPM Beta**is one of them.

### Method 3 – Use Excel VBA to Calculate CAPM Beta

- Open the
**VBA**window by pressing**Alt**+**F11**. You can also select the**Developer**tab >**Visual Basic**. - Select
**Insert**>**Module**to open a new code module.

- Use the attached code in the module and run it.

**Code:**

```
Sub Beta_VBA()
Dim P_Returns As Range
Dim M_Returns As Range
Dim Covariance As Double
Dim Variance As Double
Dim Beta As Double
Set P_Returns = Worksheets("Beta_VBA").Range("C5:C14")
Set M_Returns = Worksheets("Beta_VBA").Range("D5:D14")
Covariance = WorksheetFunction.Covariance_P(P_Returns, M_Returns)
Variance = WorksheetFunction.Var_P(P_Returns)
Beta = Covariance / Variance
Worksheets("Beta_VBA").Range("F5") = Beta
End Sub
```

- You will the find the
**CAPM Beta**in the worksheet.

**Code Breakdown:**

- We declared a sub-procedure and defined some necessary variables.
- We defined two ranges
**P_Returns**and**M_Returns**as input ranges. - We used the
**VBA Covariance_P**function to get the covariance of data from ranges**C5:C14**and**D5:D14**. We also used the**VBA****Var_P**to get the variance of data from range**C5:C14**.

- We divided the covariance result by the variance result to get beta. We printed the result in the worksheet.

## How to Use CAPM Beta to Get the Expected Return

We will use the following CAPM formula:

`r = Rf + β * (Rm - Rf) `

**r**is expected return**Rf**is the risk-free rate**β**is the capm beta**Rm**is the expected market return (average).

Follow the steps to get **Expected Return:**

- We need to determine the average of the data from
**Market Returns**:

`=AVERAGE(D5:D14)`

The **AVERAGE function** finds the average of data from the range **D5:D14**.

- Define a
**Risk-Free Rate**for the calculation. We have taken**1.5%**as a risk-free rate. - Calculate the beta as we did before.
- Apply the following formula in a cell to calculate the
**Expected Return**there.

`=F5+F8*(D15-F5)`

**F5**, **F8**, and **D15 **cells are risk-free rate, portfolio beta, and average market returns, respectively.

## Frequently Asked Questions

**How do we interpret beta values?**

A beta of **1** indicates that an investment’s returns move in line with the standard returns, while a beta greater than **1** indicates that the investment is more volatile than the standard, and a beta less than **1** indicates that the investment is less volatile than the standard.

**Can beta change over time?**

Yes, beta can change over time due to changes in market conditions, company performance, and other factors. Investors should regularly reassess their holdings and adjust their portfolios as necessary to maintain their desired level of risk.

## Things to Remember

- Be careful while dealing with cell references in the formula. In some cases, we used absolute cell references with the “
**$**” sign. - Change the
**Risk-Free Rate**according to your needs. - Don’t forget to save the file as an
**.xlsm**file before running VBA macro.

**Download the Practice Workbook**

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