I was assigned by a company which
is “Midas Financing Ltd.” on which I calculated the market risk and beta. After
collecting the data of the company I have analyzed it thoroughly and gave my
best effort to present the company’s risk & return through beta.
Midas Finance Limited is
established in 1993 with a view to establishing a new way of deposit as a
leading non-banking financial institution in Bangladesh. Midas Finance Limited
is a leading operating enterprise in Bangladesh in the field of deposit
keeping.
The data taken to calculate the
beta was of six months and therefore the validity of the beta limits to that
timeline. Analyzed beta is 0.57 and that implies that the security is less
volatile than the market.
'Market Risk'
Market risk is the possibility
for an investor to experience losses due to factors that affect the overall
performance of the financial markets. Market risk, also called "systematic
risk," cannot be eliminated through diversification, though it can be
hedged against. The risk that a major natural disaster will cause a decline in
the market as a whole is an example of market risk. Other sources of market
risk include recessions, political turmoil, changes in interest rates and
terrorist attacks. The “Beta coefficient” is used to calculate the market risk
which is also called undiversifiable risk
'Beta'
Beta is a measure of the
volatility, or systematic risk, of a security or a portfolio in comparison to
the market as a whole. Beta is used in the capital asset pricing model (CAPM),
a model that calculates the expected return of an asset based on its beta and
expected market returns. Beta is calculated using regression analysis. Beta is
the tendency of a security's returns to respond to swings in the market. A beta
of 1 indicates that the security's price will move with the market. A Beta less
than 1 means, the security will be less volatile than the market. A beta of
greater than 1 indicates that the security's price will be more volatile than
the market. For example, if a stock's beta is 1.2, it's theoretically 20% more
volatile than the market. Many utilities stocks have a beta of less than 1.
Conversely, most high-tech stocks have a beta of greater than 1, offering the
possibility of a higher rate of return, but also posing more risk.
Beta is important because it
measures the risk of an investment that cannot be reduced by diversification.
It does not measure the risk of an investment held on a stand-alone basis, but
the amount of risk the investment adds to an already-diversified portfolio. In
the capital asset pricing model, beta risk is the only kind of risk for which
investors should receive an expected return higher than the risk-free rate of
interest.
A common expression for beta is,
Where, Cov and Var are the covariance and variance
operators. This can also be expressed as
Where ρa,b is the correlation of the two returns, and σa and
σb are the respective volatilities. Relationships between standard deviation,
variance and correlation:
Beta
calculation in Microsoft Excel
Formula:
1.
= SLOPE(known_y's, known_x's)
Here, known y’s= Stock returns and known x’s= Market returns
Alternative formula:
2.
=COVARIANCE.P(equity price array, index price
array)/VAR.P(index price array)
Data source:
·
http://www.dsebd.org/data_archive.php
MIDAS
Financing Ltd.
|
Stock
Return
|
DSEX
|
Market
Return
|
Beta
|
||
Month
|
Date
|
Close Price
|
% Change
|
Close Price
|
% Change
|
0.57
|
30-Jun-15
|
12
|
4583.11
|
||||
July
|
2-Jul-15
|
13
|
8.33%
|
4572.59
|
-0.23%
|
|
5-Jul-15
|
11.9
|
-8.46%
|
4536.00
|
-0.80%
|
||
6-Jul-15
|
12.8
|
7.56%
|
4526.72
|
-0.20%
|
||
7-Jul-15
|
13
|
1.56%
|
4565.25
|
0.85%
|
||
8-Jul-15
|
12.4
|
-4.62%
|
4579.73
|
0.32%
|
||
9-Jul-15
|
12.9
|
4.03%
|
4599.91
|
0.44%
|
||
12-Jul-15
|
12.9
|
0.00%
|
4615.20
|
0.33%
|
||
13-Jul-15
|
12.5
|
-3.10%
|
4628.85
|
0.30%
|
||
14-Jul-15
|
12.6
|
0.80%
|
4656.14
|
0.59%
|
||
21-Jul-15
|
12.7
|
0.79%
|
4731.32
|
1.61%
|
||
22-Jul-15
|
12.9
|
1.57%
|
4741.98
|
0.23%
|
||
23-Jul-15
|
12.8
|
-0.78%
|
4808.40
|
1.40%
|
||
26-Jul-15
|
12.9
|
0.78%
|
4786.49
|
-0.46%
|
||
27-Jul-15
|
13
|
0.78%
|
4775.28
|
-0.23%
|
||
28-Jul-15
|
13.9
|
6.92%
|
4797.17
|
0.46%
|
||
29-Jul-15
|
13.5
|
-2.88%
|
4777.90
|
-0.40%
|
||
30-Jul-15
|
13.2
|
-2.22%
|
4792.31
|
0.30%
|
||
August
|
2-Aug-15
|
13.2
|
0.00%
|
4802.02
|
0.20%
|
|
3-Aug-15
|
13.6
|
3.03%
|
4862.55
|
1.26%
|
||
4-Aug-15
|
13.6
|
0.00%
|
4871.81
|
0.19%
|
||
5-Aug-15
|
13.9
|
2.21%
|
4873.96
|
0.04%
|
||
6-Aug-15
|
14.1
|
1.44%
|
4864.45
|
-0.20%
|
||
9-Aug-15
|
14.1
|
0.00%
|
4844.36
|
-0.41%
|
||
10-Aug-15
|
15
|
6.38%
|
4815.64
|
-0.59%
|
||
11-Aug-15
|
14.8
|
-1.33%
|
4791.47
|
-0.50%
|
||
12-Aug-15
|
14
|
-5.41%
|
4821.62
|
0.63%
|
||
13-Aug-15
|
14.1
|
0.71%
|
4808.87
|
-0.26%
|
||
16-Aug-15
|
13.8
|
-2.13%
|
4783.81
|
-0.52%
|
||
17-Aug-15
|
14.1
|
2.17%
|
4768.01
|
-0.33%
|
||
18-Aug-15
|
13.4
|
-4.96%
|
4809.27
|
0.87%
|
||
19-Aug-15
|
13.8
|
2.99%
|
4816.98
|
0.16%
|
||
20-Aug-15
|
14
|
1.45%
|
4840.16
|
0.48%
|
||
23-Aug-15
|
13.8
|
-1.43%
|
4831.72
|
-0.17%
|
||
24-Aug-15
|
13.8
|
0.00%
|
4794.00
|
-0.78%
|
||
25-Aug-15
|
13.6
|
-1.45%
|
4792.94
|
-0.02%
|
||
26-Aug-15
|
13.7
|
0.74%
|
4805.66
|
0.27%
|
||
27-Aug-15
|
13.8
|
0.73%
|
4812.82
|
0.15%
|
||
30-Aug-15
|
13.9
|
0.72%
|
4790.98
|
-0.45%
|
||
31-Aug-15
|
13.8
|
-0.72%
|
4768.67
|
-0.47%
|
||
September
|
1-Sep-15
|
14.3
|
3.62%
|
4724.52
|
-0.93%
|
|
2-Sep-15
|
14.2
|
-0.70%
|
4763.88
|
0.83%
|
||
3-Sep-15
|
14.4
|
1.41%
|
4765.72
|
0.04%
|
||
6-Sep-15
|
15
|
4.17%
|
4772.65
|
0.15%
|
||
7-Sep-15
|
15.3
|
2.00%
|
4791.91
|
0.40%
|
||
8-Sep-15
|
15.2
|
-0.65%
|
4784.46
|
-0.16%
|
||
9-Sep-15
|
15.3
|
0.66%
|
4758.43
|
-0.54%
|
||
10-Sep-15
|
16
|
4.58%
|
4760.14
|
0.04%
|
||
13-Sep-15
|
16.3
|
1.88%
|
4768.30
|
0.17%
|
||
14-Sep-15
|
16.4
|
0.61%
|
4786.19
|
0.38%
|
||
15-Sep-15
|
16.2
|
-1.22%
|
4801.81
|
0.33%
|
||
16-Sep-15
|
16.1
|
-0.62%
|
4796.82
|
-0.10%
|
||
17-Sep-15
|
16.4
|
1.86%
|
4819.45
|
0.47%
|
||
20-Sep-15
|
16.7
|
1.83%
|
4830.68
|
0.23%
|
||
21-Sep-15
|
17
|
1.80%
|
4841.62
|
0.23%
|
||
22-Sep-15
|
17
|
0.00%
|
4853.29
|
0.24%
|
||
27-Sep-15
|
17
|
0.00%
|
4853.29
|
0.00%
|
||
28-Sep-15
|
17.2
|
1.18%
|
4866.76
|
0.28%
|
||
29-Sep-15
|
17.3
|
0.58%
|
4853.17
|
-0.28%
|
||
30-Sep-15
|
17.4
|
0.58%
|
4852.08
|
-0.02%
|
||
October
|
1-Oct-15
|
16.9
|
-2.87%
|
4856.97
|
0.10%
|
|
4-Oct-15
|
16.4
|
-2.96%
|
4814.61
|
-0.87%
|
||
5-Oct-15
|
16.7
|
1.83%
|
4831.60
|
0.35%
|
||
6-Oct-15
|
16.8
|
0.60%
|
4833.33
|
0.04%
|
||
7-Oct-15
|
16.3
|
-2.98%
|
4800.63
|
-0.68%
|
||
8-Oct-15
|
16.4
|
0.61%
|
4781.36
|
-0.40%
|
||
11-Oct-15
|
15.3
|
-6.71%
|
4728.13
|
-1.11%
|
||
12-Oct-15
|
15.2
|
-0.65%
|
4776.15
|
1.02%
|
||
13-Oct-15
|
15.1
|
-0.66%
|
4779.66
|
0.07%
|
||
14-Oct-15
|
14.6
|
-3.31%
|
4716.08
|
-1.33%
|
||
15-Oct-15
|
14.7
|
0.68%
|
4676.63
|
-0.84%
|
||
18-Oct-15
|
15
|
2.04%
|
4608.03
|
-1.47%
|
||
19-Oct-15
|
15.1
|
0.67%
|
4644.64
|
0.79%
|
||
20-Oct-15
|
13.9
|
-7.95%
|
4657.65
|
0.28%
|
||
21-Oct-15
|
14.1
|
1.44%
|
4647.68
|
-0.21%
|
||
25-Oct-15
|
15.3
|
8.51%
|
4649.29
|
0.03%
|
||
26-Oct-15
|
15.1
|
-1.31%
|
4630.58
|
-0.40%
|
||
27-Oct-15
|
14.6
|
-3.31%
|
4589.33
|
-0.89%
|
||
28-Oct-15
|
14.3
|
-2.05%
|
4579.37
|
-0.22%
|
||
29-Oct-15
|
14.1
|
-1.40%
|
4564.49
|
-0.32%
|
||
November
|
1-Nov-15
|
13.5
|
-4.26%
|
4514.85
|
-1.09%
|
|
2-Nov-15
|
12.9
|
-4.44%
|
4536.05
|
0.47%
|
||
3-Nov-15
|
14
|
8.53%
|
4551.51
|
0.34%
|
||
4-Nov-15
|
15.2
|
8.57%
|
4511.31
|
-0.88%
|
||
5-Nov-15
|
15.9
|
4.61%
|
4502.16
|
-0.20%
|
||
8-Nov-15
|
15.4
|
-3.14%
|
4443.15
|
-1.31%
|
||
9-Nov-15
|
15.2
|
-1.30%
|
4416.91
|
-0.59%
|
||
10-Nov-15
|
15.4
|
1.32%
|
4410.58
|
-0.14%
|
||
11-Nov-15
|
15
|
-2.60%
|
4371.54
|
-0.89%
|
||
12-Nov-15
|
15
|
0.00%
|
4433.58
|
1.42%
|
||
15-Nov-15
|
15.4
|
2.67%
|
4424.21
|
-0.21%
|
||
16-Nov-15
|
14.9
|
-3.25%
|
4475.81
|
1.17%
|
||
17-Nov-15
|
14.8
|
-0.67%
|
4496.36
|
0.46%
|
||
18-Nov-15
|
14.5
|
-2.03%
|
4496.68
|
0.01%
|
||
19-Nov-15
|
14.9
|
2.76%
|
4531.63
|
0.78%
|
||
22-Nov-15
|
14.9
|
0.00%
|
4596.81
|
1.44%
|
||
23-Nov-15
|
15.1
|
1.34%
|
4585.11
|
-0.25%
|
||
24-Nov-15
|
15.3
|
1.32%
|
4574.06
|
-0.24%
|
||
25-Nov-15
|
14.8
|
-3.27%
|
4568.01
|
-0.13%
|
||
26-Nov-15
|
14.9
|
0.68%
|
4573.75
|
0.13%
|
||
29-Nov-15
|
15.2
|
2.01%
|
4580.76
|
0.15%
|
||
30-Nov-15
|
15.5
|
1.97%
|
4581.00
|
0.01%
|
||
December
|
1-Dec-15
|
15.7
|
1.29%
|
4621.67
|
0.89%
|
|
2-Dec-15
|
15.9
|
1.27%
|
4619.51
|
-0.05%
|
||
3-Dec-15
|
15.6
|
-1.89%
|
4641.04
|
0.47%
|
||
6-Dec-15
|
15.4
|
-1.28%
|
4654.75
|
0.30%
|
||
7-Dec-15
|
15.3
|
-0.65%
|
4608.05
|
-1.00%
|
||
8-Dec-15
|
15.4
|
0.65%
|
4593.49
|
-0.32%
|
||
9-Dec-15
|
15
|
-2.60%
|
4587.38
|
-0.13%
|
||
10-Dec-15
|
15
|
0.00%
|
4583.42
|
-0.09%
|
||
13-Dec-15
|
15.1
|
0.67%
|
4542.73
|
-0.89%
|
||
14-Dec-15
|
15.4
|
1.99%
|
4533.91
|
-0.19%
|
||
15-Dec-15
|
14.7
|
-4.55%
|
4513.97
|
-0.44%
|
||
17-Dec-15
|
15.2
|
3.40%
|
4520.88
|
0.15%
|
||
20-Dec-15
|
15.5
|
1.97%
|
4511.54
|
-0.21%
|
||
21-Dec-15
|
15.9
|
2.58%
|
4578.88
|
1.49%
|
||
22-Dec-15
|
16.4
|
3.14%
|
4593.74
|
0.32%
|
||
23-Dec-15
|
17
|
3.66%
|
4588.75
|
-0.11%
|
||
24-Dec-15
|
17.4
|
2.35%
|
4608.32
|
0.43%
|
||
27-Dec-15
|
17.2
|
-1.15%
|
4602.52
|
-0.13%
|
||
28-Dec-15
|
17.3
|
0.58%
|
4592.33
|
-0.22%
|
||
29-Dec-15
|
16
|
-7.51%
|
4596.81
|
0.10%
|
||
30-Dec-15
|
17.1
|
6.88%
|
4604.92
|
0.18%
|
||
31-Dec-15
|
16.7
|
-2.34%
|
4629.64
|
0.54%
|
||
Analysis:
The market is gradually
increasing in return percentage, but the share is not giving same amount of
return. The beta is 0.57 which states the low volatility of risk. Which
is 43% low volatile to market return.
Here we can see that the market
is gradually increasing in return but the company share is not moving along
with the market. The company share return is less responsive as the beta value
resides below 1 and that implies the poor performance of the company share.
Here, I have also calculated beta
for each month for the company as illustrated below.
This graph shows that the
volatility of the company stock over the months is mostly below of beta 1.
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