Alpha and Beta Calculator
Free alpha and beta calculator. Measure your portfolio's market sensitivity (beta) and excess risk-adjusted return (alpha) against a benchmark index.
Unlevered Beta Calculator
Calculate unlevered (asset) beta from levered beta using the Hamada equation. Re-lever to target D/E ratios, decompose business vs financial risk, and compare industry betas.
For re-levering
Unlevered Beta (Asset β)⧉
1.1470
Pure business risk, no debt amplification
Re-Levered Beta⧉
1.8718
At target D/E = 0.80
Financial Risk⧉
0.4530
28.3% of levered beta
CAPM (Levered)⧉
13.30%
Current cost of equity
CAPM (Unlevered)⧉
10.81%
Cost of equity with zero debt
CAPM (Re-Levered)⧉
14.80%
Cost of equity at target D/E
Beta Decomposition
Business Risk (1.147)
Financial Risk (0.453)
Total levered beta: 1.600 = 1.147 + 0.453
D/E Ratio Sensitivity
| D/E | Re-Levered β | CAPM Return |
|---|---|---|
| 0.00 | 1.147 | 10.81% |
| 0.25 | 1.373 | 12.05% |
| 0.50 | 1.600 | 13.30% |
| 0.75 | 1.827 | 14.55% |
| 1.00 | 2.053 | 15.79% |
| 1.50 | 2.506 | 18.28% |
| 2.00 | 2.959 | 20.78% |
| 3.00 | 3.865 | 25.76% |
Industry Average Unlevered Betas
| Sector | Unlevered β | Avg D/E | Your β_U | Diff |
|---|---|---|---|---|
| Technology | 1.10 | 0.15 | 1.147 | +0.047 |
| Healthcare | 0.85 | 0.25 | 1.147 | +0.297 |
| Consumer Discretionary | 0.95 | 0.45 | 1.147 | +0.197 |
| Financials | 0.45 | 2.50 | 1.147 | +0.697 |
| Utilities | 0.30 | 1.20 | 1.147 | +0.847 |
| Energy | 0.90 | 0.35 | 1.147 | +0.247 |
| Real Estate | 0.50 | 0.80 | 1.147 | +0.647 |
Planning notes, formulas, and examples
About the Unlevered Beta Calculator
Unlevered beta (asset beta) strips out the effect of debt to reveal a company's pure business risk. Observed stock betas include both business risk and financial risk from leverage. The Hamada equation separates these two components: β_U = β_L / [1 + (1 − T) × D/E].
This separation is essential for three common finance tasks. First, comparing business risk across companies with different capital structures — a tech company with β_L of 1.6 and D/E of 0.5 has the same business risk as one with β_L of 1.27 and zero debt. Second, estimating the cost of equity for an acquisition target under your planned financing. Third, calculating industry betas for WACC estimates in DCF valuations.
This calculator performs the full unlever-relever workflow: start with an observed levered beta, strip out the current D/E ratio's financial risk, then re-lever to any target capital structure. The visual decomposition shows exactly how much of the observed beta comes from business fundamentals versus leverage amplification.
When This Page Helps
Use unlevered beta when capital structure is distorting the comparison you actually care about. It is the cleanest way to compare operating risk across companies, rebuild a target company's beta under a proposed financing mix, and estimate WACC from peer data without mixing leverage into the result.
How to Use the Inputs
- Enter the observed (levered) beta from Yahoo Finance or your data source.
- Enter the company's debt-to-equity ratio and tax rate.
- View the unlevered beta — pure business risk without leverage.
- Set a target D/E ratio to re-lever for different capital structures.
- Review the risk decomposition bar for business vs financial risk split.
- Compare against industry averages and check D/E sensitivity.
Formula used
Unlevered Beta = β_L / [1 + (1 − T) × D/E] (Hamada Equation)
Re-Levered Beta = β_U × [1 + (1 − T) × D/E_target]
Financial Risk = β_L − β_U
CAPM Expected Return = Rf + β × (Rm − Rf)Example Calculation
Result: Unlevered Beta: 1.152, Financial Risk: 0.448
With β_L = 1.60 and D/E = 0.50 at 21% tax: β_U = 1.60 / (1 + 0.79 × 0.50) = 1.152. The financial risk component of 0.448 (28%) comes purely from leverage. The underlying business risk is moderate at 1.15.
Tips & Best Practices
- Damodaran publishes industry unlevered betas annually — great for cross-referencing your calculation.
- For WACC estimates, average unlevered betas across 3-5 peer companies, then re-lever at the subject company's D/E.
- Financial companies (banks, insurance) have atypical leverage that makes Hamada less reliable. Use equity beta directly.
- If you only have operating lease data, capitalize leases and add to debt before calculating D/E.
- A β_U above 1.0 indicates the business itself is riskier than the market, before any leverage effects.
Reading the Result
The unlevered beta reflects business risk before financing effects. Use it to compare firms in the same industry, then re-lever it only after you decide on a target debt-to-equity ratio. That keeps acquisition models, peer screens, and WACC estimates anchored to the same operating baseline.
Practical Checks
Use market-value debt and equity when possible, and verify whether lease obligations should be added to debt before you calculate D/E. Very high leverage can make the Hamada adjustment swing sharply, so sanity-check the output against peer betas and published industry ranges.
Sources & Methodology
Last updated:
Methodology
This worksheet applies the standard Hamada-style leverage adjustment: it un-levers the observed equity beta using the current debt-to-equity ratio and tax rate, then re-levers that asset beta at a target debt-to-equity ratio. It also translates the current, unlevered, and re-levered betas into CAPM-style required returns using the user-entered risk-free rate and market return.
The industry-beta comparison table is illustrative rather than a live market data feed. It uses fixed reference values on the page, so it should be treated as a quick sense check and not as a substitute for a current peer-beta comp set.
Sources
- Glossary: Beta (Investor.gov) — SEC investor-education glossary entry defining beta as a measure of market risk.
- Financial And Business Risk (Aswath Damodaran, NYU Stern) — Damodaran lecture notes showing the standard unlevered-beta and relevered-beta equations.
- Betas by Sector (Aswath Damodaran, NYU Stern) — Current sector beta reference used as an external check when comparing business-risk estimates.
Frequently Asked Questions
β_L = β_U × [1 + (1 − T) × D/E]. It relates a levered (observed) beta to unlevered (asset) beta, accounting for the tax shield benefit of debt. Named after Robert Hamada.
Debt creates fixed obligations. In bad times, equity holders absorb all the loss after debt payments. This amplifies the volatility (and beta) of equity returns. More debt = more financial risk = higher beta.
Market values are theoretically correct — use market cap for equity and market value (or book value as proxy) for debt. Damodaran recommends market-value-weighted debt/equity.
In M&A: you unlever the target's beta, then re-lever to YOUR planned capital structure. Also for WACC calculations when evaluating projects with different risk profiles.
A negative D/E means the company has more cash than debt. This makes the unlevered beta slightly higher than levered beta. The Hamada equation still applies.
No — Fernandez and Miles-Ezzell offer alternatives with different assumptions about tax shield risk. Hamada assumes the tax shield has the same risk as debt. For most purposes, Hamada is standard.
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