Sum of weighted beta coefficients
To calculate the portfolio beta coefficient, multiply each stock's weight in the portfolio by its beta and add up the products. Two columns have been added to the table: "Weight" - the relative weight in the portfolio of each stock and "Weight x Beta" - the weighted beta coefficients. The beta coefficient of the portfolio is the sum of these products.
| Security | Amount Invested | Weight Coefficient | Beta | Weight x Beta |
| Stock A | $1,000 | 0.10 | 0.80 | 0.08 |
| Stock B | $2,000 | 0.20 | 0.95 | 0.19 |
| Stock C | $3,000 | 0.30 | 1.10 | 0.33 |
| Stock D | $4,000 | 0.40 | 1.40 | 0.56 |
| - | - | - | Portfolio Beta bP = | 1.16 |
Remember, the relative weight of a security is its percentage of the
total investment. These weights must add to 1.0.
For this example, the beta coefficient of the portfolio is 1.16.
Because the beta is larger than 1.0, this portfolio has greater
systematic risk than the market portfolio.
As mentioned earlier, investors are rewarded for bearing systematic risk.
The next step will be to calculate the amount of the reward.