Beta (β)
Beta measures the sensitivity of a stock's returns to movements in the overall market. A beta of 1.0 means the stock moves in line with the market; above 1.0 means greater volatility; below 1.0 means less. In stock valuation, beta is a core input for calculating the cost of equity via CAPM.
Formula
Example
A stock with a beta of 1.4 is expected to rise 14% when the market rises 10%, and fall 14% when the market falls 10%. Higher beta implies higher required return in stock valuation models.
Why It Matters
Beta is central to stock valuation because it determines the cost of equity through the Capital Asset Pricing Model. Using an incorrect beta leads to a mispriced discount rate and ultimately an inaccurate intrinsic value estimate.
How MiniValuator Uses Beta (β)
MiniValuator does not use beta in its valuation engine. Rather than deriving a per-stock discount rate from CAPM (which is where beta would enter), the tool applies a single discount rate that defaults to 10% and can be edited directly. Beta appears here as a core valuation concept, not as a MiniValuator input.
See It in Action
- How the DCF model calculates intrinsic value
- Technology sector intrinsic value analysis
- Healthcare sector intrinsic value analysis
Related Terms
- Discounted Cash Flow (DCF) — Discounted Cash Flow (DCF) is a fundamental stock valuation methodology that estimates the present v...
- Weighted Average Cost of Capital (WACC) — WACC is the blended rate of return that a company must earn on its invested capital to satisfy all o...
- Capital Asset Pricing Model (CAPM) — CAPM is a financial model that defines the relationship between systematic risk and expected return ...
- Cost of Equity — Cost of equity is the return that equity investors require to compensate them for the risk of invest...
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