Beta Calculation

[Beta Calculation]

Being roughly right in investing is better than being precisely wrong.

Beta is calculated based on an index fund beta of 1.0. The index fund we choose for comparison is QQQ, so we define QQQ's beta as 1.0.

Those outside who insist that SPY must be Beta 1.0 are rigid bookish thinkers, stuck in old ideas.

Beta Assumptions

• QQQ (00662): we treat its beta as 1.0.
• QLD (00670L): this is a 2x leveraged fund, so we treat its beta as 2.0.
• Cash (money market funds and 00864B): we treat its beta as 0.0.

Calculation Method

For each asset, multiply its beta by its portfolio allocation. Add those values together, and the result is the beta of your asset portfolio.

For example:

• QQQ beta 1.0
• QLD beta 2.0
• BOXX (money market fund, cash) beta 0.0
• TQQQ beta 3.0

If your asset allocation is:

• QQQ 60%
• QLD 10%
• TQQQ 10%
• BOXX money market fund 20%

Your beta = 60% x 1.0 + 10% x 2.0 + 10% x 3.0 + 20% x 0.0 = 1.1.

So the following asset allocations have beta values calculated as follows:

Asset Allocation 1

• 70% 00662 (QQQ) beta 1.0
• 20% 00670L (QLD) beta 2.0
• 10% 00864B (money market) beta 0.0

Beta:

= 70% x 1.0 + 20% x 2.0 + 10% x 0.0
= 0.7 + 0.4 + 0.0
= 1.1

Asset Allocation 2

• 80% 00662 (QQQ) beta 1.0
• 10% 00670L (QLD) beta 2.0
• 10% 00864B (money market) beta 0.0

Beta:

= 80% x 1.0 + 10% x 2.0 + 10% x 0.0
= 0.8 + 0.2 + 0.0
= 1.0