Adjusted Beta

Adjusted Beta is a modified version of Raw Beta that accounts for the empirical tendency of betas to regress toward 1 over time (the market average). This adjustment provides a more realistic estimate of a stock’s future systematic risk.

Formula (Blume Adjustment)

$$\text{Adjusted Beta}=0.67\times \text{Raw Beta}+0.33\times 1$$

Interpretation

• Moves the raw beta 1/3 of the way towards the market average of 1.