what is unlevered beta 
beta is a measure of market risk unlevered beta or asset beta measures the market risk of the company without the impact of debt unlevering a beta removes the financial effects of leverage thus isolating the risk due solely to company assets in other words how much did the company s equity contribute to its risk profile investopedia laura porterunderstanding unlevered betabeta is the slope of the coefficient for a stock regressed against a benchmark market index like the standard poor s s p 500 index a key determinant of beta is leverage which measures the level of a company s debt to its equity levered beta measures the risk of a firm with debt and equity in its capital structure to the volatility of the market the other type of beta is known as unlevered beta unlevering the beta removes any beneficial or detrimental effects gained by adding debt to the firm s capital structure comparing companies unlevered betas gives an investor clarity on the composition of risk being assumed when purchasing the stock unlevered beta asset beta levered beta equity beta 1 1 tax rate debt equity text unlevered beta asset beta frac text levered beta equity beta left 1 frac left 1 text tax rate right text debt text equity right unlevered beta asset beta 1 equity 1 tax rate debt levered beta equity beta 1take a company that is increasing its debt thus raising its debt to equity ratio this will lead to a larger percentage of earnings being used to service that debt which will amplify investor uncertainty about future earnings stream consequently the company s stock is deemed to be getting riskier but that risk is not due to market risk isolating and removing the debt component of overall risk results in unlevered beta the level of debt that a company has can affect its performance making it more sensitive to changes in its stock price note that the company being analyzed has debt in its financial statements but unlevered beta treats it like it has no debt by stripping any debt off the calculation since companies have different capital structures and levels of debt an analyst can calculate the unlevered beta to effectively compare them against each other or against the market this way only the sensitivity of a firm s assets equity to the market will be factored in to unlever the beta the levered beta for the company has to be known in addition to the company s debt equity ratio and corporate tax rate systematic risk and betasystematic risk is the type of risk that is caused by factors beyond a company s control this type of risk cannot be diversified away examples of systematic risk include natural disasters political elections inflation and wars beta is used to measure the level of systematic risk or volatility of a stock or portfolio beta is a statistical measure that compares the volatility of the price of a stock against the volatility of the broader market if the volatility of the stock as measured by beta is higher the stock is considered risky if the volatility of the stock is lower the stock is said to have less risk a beta of one is equivalent to the risk of the broader market that is a company with a beta of one has the same systematic risk as the broader market a beta of two means the company is twice as volatile as the overall market but a beta of less than one means the company is less volatile and presents less risk than the broader market example of unlevered betafor example calculating the unlevered beta for tesla inc as of november 2017 unlevered beta is almost always equal to or lower than levered beta given that debt will most often be zero or positive in the rare occasions where a company s debt component is negative say a company is hoarding cash then unlevered beta can potentially be higher than levered beta if the unlevered beta is positive investors will invest in the company s stock when prices are expected to rise a negative unlevered beta will prompt investors to invest in the stock when prices are expected to decline 