Assume your portfolio consists of 50% of a stock with a beta of 0.275 and 50% of a stock with a beta of 1.918. For each 1 dollar of your portfolio, how much SP500 index should you short? (enter number only)
Assume your portfolio consists of 50% of a stock with a beta of 0.275 and 50% of a stock with a beta of 1.918. For each 1 dollar of your portfolio, how much SP500 index should you short? (enter number only)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Portfolio Beta Calculation and SP500 Shorting Strategy**
Assume your portfolio consists of:
- 50% of a stock with a beta of 0.275
- 50% of a stock with a beta of 1.918
Question:
For each $1 of your portfolio, how much of the SP500 index should you short? (Enter the numerical value only)
**Explanation:**
To maintain a market-neutral position, you need to calculate the portfolio's overall beta and adjust the portfolio by shorting the SP500 index accordingly.
Expert Solution
Step 1
1) Beta is a measure of Systematic risk of a stock or portfolio. Beta of market is always one. Beta measures the change in portfolio return with reference to change in market
Ex: If beta of a portfolio is 0.5, it means that if market changes by 1%, portfolio return changes by 0.5%
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