Beta

Beta is a relative measure of risk; it measures how sensitive the returns of an asset are to returns on the
market portfolio (co-movement). Beta is the slope (coefficient) in the regression of an assets return (risk
premium) on the markets return (market risk premium).
According to asset pricing theory, beta represents the risk that cannot be diversified away know as
systematic risk. Systematic risk is the risk inherent to the entire market and not just a particular industry.
Beta is a useful as it helps investors choose investments that match their specific risk preference. It can
be used to measure a securitys response to changes in the market so that portfolios can be structured
that have specific risk characteristics in security analysis.
The following provides meaning to the result of Beta
Equal to 1 the security has the same systematic risk as the market and will move with the
market (neutral asset)
Since securities whose beta are greater than 1, results in more changes in relation to the market
(volatile), there is a higher level of return to be achieved for the additional risk.
Greater than 1 the security has more systematic risk than the market, and as such the price
will move more than the market. (aggressive asset)
Less than 1 the security has less systematic risk than the market, and is less volatile. (defensive
asset)
Beta is a key component in the estimation of the cost of capital. A firms cost of capital can be
derived using the Capital Asset pricing Model (CAPM), where E(Ri) = Rf + i (E (Rm) Rf).

Beta: Chipotle
In calculating Beta for Chipotle, weekly returns for May 2013 to May 2014 for both Chipotle and
NYSE Composite Index were calculated.
The relationship between Chipotle and the NYSE was calculated using two functions in Excel
=SLOPE(array of weekly percentage change of Chipotle, array of weekly percentage change of
index)
=COVARIANCE.P(Chipotle weekly returns, NYSE weekly returns)/VAR.P(NYSE weekly Returns)

Date
May 27, 2014
May 19, 2014
May 12, 2014
May 05, 2014
Apr 28, 2014
Apr 21, 2014
Apr 14, 2014
Apr 07, 2014
Mar 31, 2014
Mar 24, 2014
Mar 17, 2014
Mar 10, 2014
Feb 24, 2014
Feb 18, 2014
Feb 10, 2014
Feb 03, 2014
Jan 27, 2014
Jan 21, 2014
Jan 13, 2014
Jan 06, 2014

Close
Chipotle
536.04
501.29
510.21
512.68
476.28
506.54
540.98
535.59
568.05
588.54
576.26
587.96
554.38
552.86
548.09
543.2
489.31
525.57
529.8
527.32

Weekly
Return
0.0693
-0.0175
-0.0048
0.0764
-0.0597
-0.0637
0.0101
-0.0571
-0.0348
0.0213
-0.0199
0.0606
0.0027
0.0087
0.0090
0.1101
-0.0690
-0.0080
0.0047
-0.0089

Date

May 27, 2014

May 19, 2014
May 12, 2014
May 05, 2014
Apr 28, 2014
Apr 21, 2014
Apr 14, 2014
Apr 07, 2014
Mar 31, 2014
Mar 24, 2014
Mar 17, 2014
Mar 10, 2014
Feb 24, 2014
Feb 18, 2014
Feb 10, 2014
Feb 03, 2014
Jan 27, 2014
Jan 21, 2014
Jan 13, 2014
Jan 06, 2014

Close

Weekly
return

NYSE
10720.62
10618.64
10703.5
10630.13
10526.52
10559.35
10359.44
10407.42
10527.77
10362.06
10377.02
10486.15
10369.52
10319.12
10050.4
9741.58
9981.35
10366.01
10256.15
10270.06

0.0096
-0.0079
0.0069
0.0098
-0.0031
0.0193
-0.0046
-0.0114
0.0160
-0.0014
-0.0104
0.0112
0.0049
0.0267
0.0317
-0.0240
-0.0371
0.0107
-0.0014
-0.0085

Dec 30, 2013

Dec 23, 2013
Dec 16, 2013
Dec 09, 2013
Dec 02, 2013
Nov 25, 2013
Nov 18, 2013
Nov 11, 2013
Nov 04, 2013
Oct 28, 2013
Oct 21, 2013
Oct 14, 2013
Oct 07, 2013
Sep 30, 2013
Sep 23, 2013
Sep 16, 2013
Sep 09, 2013
Sep 03, 2013
Aug 26, 2013
Aug 19, 2013
Aug 12, 2013
Aug 05, 2013
Jul 29, 2013
Jul 22, 2013
Jul 15, 2013
Jul 08, 2013
Jul 01, 2013
Jun 24, 2013
Jun 17, 2013
Jun 10, 2013
Jun 03, 2013

532.04
531.03
515.38
527.32
524.5
532.31
537.51
536.44
535.18
527.85
509.25
442.02
433.4
428.8
415.24
423.46
411.7
404.9
402.09
403.6
402.97
412.3
404.44
401.8
384.19
386.03
363.74
358.16
367.68
364.57
358.84

0.0019
0.0304
-0.0226
0.0054
-0.0147
-0.0097
0.0020
0.0024
0.0139
0.0365
0.1521
0.0199
0.0107
0.0327
-0.0194
0.0286
0.0168
0.0070
-0.0037
0.0016
-0.0226
0.0194
0.0066
0.0458
-0.0048
0.0613
0.0156
-0.0259
0.0085
0.0160
-0.0318

Dec 30, 2013

Dec 23, 2013
Dec 16, 2013
Dec 09, 2013
Dec 02, 2013
Nov 25, 2013
Nov 18, 2013
Nov 11, 2013
Nov 04, 2013
Oct 28, 2013
Oct 21, 2013
Oct 14, 2013
Oct 07, 2013
Sep 30, 2013
Sep 23, 2013
Sep 16, 2013
Sep 09, 2013
Sep 03, 2013
Aug 26, 2013
Aug 19, 2013
Aug 12, 2013
Aug 05, 2013
Jul 29, 2013
Jul 22, 2013
Jul 15, 2013
Jul 08, 2013
Jul 01, 2013
Jun 24, 2013
Jun 17, 2013
Jun 10, 2013
Jun 03, 2013

10357.84
10246.68
10024.98
10146.26
10137.02
10176.2
10167.16
10042.95
10064.11
10058.54
9982.69
9797.18
9597.55
9621.25
9733.03
9704.47
9539.93
9333.49
9432.51
9385.89
9609.03
9671.6
9571.79
9650.59
9520.96
9266.3
9167.89
8892.03
9337.89
9358
9357.08

0.0108
0.0221
-0.0120
0.0009
-0.0039
0.0009
0.0124
-0.0021
0.0006
0.0076
0.0189
0.0208
-0.0025
-0.0115
0.0029
0.0172
0.0221
-0.0105
0.0050
-0.0232
-0.0065
0.0104
-0.0082
0.0136
0.0275
0.0107
0.0310
-0.0477
-0.0021
0.0001
-0.0144

May 28, 2013

May 20, 2013
May 13, 2013
May 06, 2013

370.61
376.87
367.51
373.98

United States Government Bonds

US Treasury Yields 2.32%

www.bloomberg.com

-0.0166
0.0255
-0.0173

May 28, 2013

May 20, 2013
May 13, 2013
May 06, 2013

9494.17
9587.54
9437.18
9348.9

-0.0097
0.0159
0.0094