How to Calculate Beta using Correlation and Volatility

This video shows how to calculate the beta of a stock using the correlation of the stock with the market index.

Beta is equal to:
(1) the correlation of a company's stock returns with the returns of the market index (e.g., the returns of the S&P 500) times the standard deviation of the company's stock returns
divided by
(2) the standard deviation of the returns of the market index.

The standard deviation of stock returns is also known as volatility.

[Correlation * volatility (stock)] / volatility (market) = beta

For example, let's say we are examining monthly stock returns for a company called Fluffy Love and the S&P 500 for the past five years, and we observe the following:
Correlation = 0.5
Volatility (Fluffy Love) = 30%
Volatility (S&P 500) = 20%

Fluffy Love's beta would be 0.75. This was calculated as follows:
(0.5 * 30%) / 20% = 0.75—
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