you own a stock portfolio invested 25 percent in stock q, 20 percent in stock r, 40 percent in stock s, and 15 percent in stock t. the betas for these four stocks are .81, 1.19, 1.20, and 1.37, respectively. what is the portfolio beta?

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20-12-2022
Business

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you own a stock portfolio invested 25 percent in stock q, 20 percent in stock r, 40 percent in stock s, and 15 percent in stock t. the betas for these four stocks are .81, 1.19, 1.20, and 1.37, respectively. what is the portfolio beta?

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tutorconsortium134 tutorconsortium134 · Answer 1 · 2022-12-23T08:06:18+01:00

The beta of a portfolio is the sum of the weight of each asset times the beta of each asset. So, the beta of the portfolio is: βP=.35(.83)+.25(1.21)+.25(1.22) + .15(1.39)

βP = 1.11

What is portfolio beta?

While stock beta only provides a snapshot of a stock's volatility, portfolio beta is a measure of a portfolio's overall sensitivity to market fluctuations.

The beta calculation algorithms utilised for each stock in a portfolio will differ because a portfolio is a collection of various stock holdings.

A stock's risk or volatility in relation to the overall market is indicated by its beta value.

Your risk appetite and objectives will, therefore, determine a good beta. A beta of 1.0 would be excellent if you wanted to imitate the larger market in your portfolio, for example with an index ETF.

The standard deviation of returns for the security and the benchmark might then be divided to determine beta.Beta of 1: A stock has a beta of 1 if it replicates the market's general volatility using the same index.

A stock will move roughly in the same direction and by the same amount as the index if its beta is 1. A fund's beta will be near 1 if it closely replicates the S&P 500 index.

To learn more about portfolio beta refer to:

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