Calculating Beta

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We treat the Beta of QQQ (00662) as 1.0

Calculating Beta

In investing, being roughly right is better than being precisely wrong.

Our Beta calculation uses an index fund as the 1.0 baseline. The comparison index fund we use is QQQ, so we treat QQQ's Beta as 1.0.

Some people insist that only SPY should be treated as Beta 1.0. I consider that a rigid, textbook view.

We treat the Beta of QQQ (00662) as 1.0.

QLD (00670L) is 2x leveraged, so we treat its Beta as 2.0.

Cash, money market funds, and 00864B are treated as Beta 0.0.

The Beta of each asset multiplied by its allocation percentage gives the Beta of the whole portfolio.

Such as

QQQ Beta 1.0

QLD BETA 2.0

BOXX (money market funds, cash) beta 0.0

TQQQ Beta 3.0

If this is your asset allocation

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 for the following asset allocation we calculate beta as follows:

Beta

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