Beta for Microsoft and Nokia Incorporations

Beta analysis refers to that process through which firms and large companies determine the systematic risk and compares it to the aggregate market(Bodie,2013). A common financial best practice commonly applied in the valuation and pricing of capital Assets .A common method for better determination is through the regression computations.

Beta =(Covariance,r1r2)/(Variance,rm)

The covariance of return of assets divided

by

variance of the return of a benchmark over a period.

Alternatively

Beta=correlation(ra,rm)×qi/qm

The beta calculation for Microsoft is given by over years for against S&P

Covariance of Microsoft,S&P 500 /(SDmicro*SD s&p)

=12.48/12.55

=0.994

For Nokia,the beta calculation is given as

Covariance,S&P 500÷(SD×SD of S&P 500)

=10.24/(6.31*2.98)

=1.15

When a stock beta goes below 1 then the stock is more than the market. When the stocks are higher than the investment will be risky(Spreitzer,2008). The less riskier businesses shows the market is higher than the stock. The two companies,nokia and Microsoft are both volatile with a very slim margin on the beta.

Beta analysis gives precise and measurable variable for the assessment of risks. This is of advantage as it enables companies and firms to make informed decisions. However, at times the whole beta may be misleading as it does not show the trends they may arise in the markets.Suppose the stock price rises by 10% then the beta analysis increases and this shows the process as being risky.

Historical standard deviation on returns for Microsoft and Nokia

References

Bodie,Z.(2013). Investments

Fama,E.F.,Fisher,L.,Jensen,M.C,Roll,R.(1969). The adjustment of stock prices to new Information .