Calculation of a portfolio's beta?
You hold a diversified portfolio consisting of 20 different common stocks (total investment=$200,000). The portfolio beta is equal to 1.2. You have decided to sell one of your stocks which has a beta equal to 0.7 for 10,000. You plan to purchase another stock which has a beta equal to 1.4. What will be the beta of the new portfolio?
Calculating Portfolio Betas?
You own a stock portfolio invested 34 percent in Stock Q, 18 percent in Stock R, 36 percent in Stock S, and 12 percent in Stock T. The betas for these four stocks are 1.03, 1.09, 1.49, and 1.94, respectively. What is the portfolio beta?
How to solve for beta?
I am having trouble solving beta for a problem. The historical returns for the past three years for Stock B and the stock market portfolio are: Stock B: 24%, 0%, 24%; Market portfolio: 10%, 12%, 20%. Calculate the required rate of return (cost of equity) for Stock B using the CAPM. (The risk-free rate of return = 4%.) I know i need to use the CAPM formula of R-Rf=Beta(Rm-Rf). I know that Rf is 4% and i calculated Rm to be 14%. But how to i calculate beta with the information given?
Calculating beta of a portfolio?
1) You have a $50,000 portfolio consisting of Intel, GE and Con Edison. You put $20,000 in Intel, $12,000 in GE and the rest in Con Edison. Intel, GE and Con Edison have betas of 1.3, 1.0 and 0.8 respectively. What is your portfolio beta? 2) Consider the capital asset pricing model. The market degree of risk aversion, A, is 3. The variance of return on the market portfolio is .0225. If the risk-free rate of return is 4%, the expected return on the market portfolio is _________. can someone help me with these two problems, I am a bit confused. Can find the formula to solve them. thanks.
Beta Calculation?
Are you doing this as an investment, or as a class project? If you are going to invest in something, then you should use a very strict definition of what the beta calculation is. Here is an article which says it is for the average investor. I doubt that very much: it is certainly above my pay grade. http://www.investopedia.com/articles/fin... If it is for a school project, it may require the same thing. If you are just working in theory, then you could set up a weighting scale of some kind. amount1 * beta1 + amount2 * beta2 = total amount * beta(unknown) 40000 * 1.2 +10000*2.2 = 50000 * beta 48000 + 22000 = 50000 * beta 70000 = 50000* beta 70000 / 50000 = beta 1.4 = beta. As an approximation, that probably isn't too very awful. Your beta has increased, but not so much that it is still crowding in on 2.2 Good luck.
What is the difference between beta and correlation coefficient?
Beta shows how strongly one stock (or portfolio) responds to systemic volatility of the entire market. A beta of 1 means that the stock responds to market volatility in tandem with the market, on average. A larger beta means that the stock is more susceptible to market risk while a beta less than 1 means that the stock is less responsive to market risk. Beta values are not bounded like the correlation coefficient. Correlation coefficient, on the other hand, must be between -1 and 1, where -1 means that the stock and the market move opposite of each other, 0 means that the stock and the market movements don't have a relationship, and 1 means that the stock moves with the market. Because of their different value meanings and bounds, the formulas are different. From Wikipedia, the correlation coefficient iswhere X is the stock return and Y is the market return.Beta is defined aswhich is equivalent towhere r_a is the stock return and r_b is the market return.In practice we use beta because it is volatility of a security relative to the benchmark. Correlation does not distinguish which we are studying with respect to the other.
How can I calculate the log return of my portfolio?
If there are no cash flows, you take the natural logarithm of the ratio of the final value to the initial value. That’s equivalent to subtracting the natural logarithm of the initial value from the natural logarithm of the final value.If you want to annualize the figure, you divide by the number of years in the period.If there are cash flows, then it’s more complicated, and there are different conventions. There’s no simple closed-form formula unless the cash flows have certain special forms. You generally solve using an iterative algorithm.
How can I find the weight of assets portfolio if given a beta of 0.9?
This can be done fairly if you have a portfolio of two stocks with known betas.Beta assumes a stock moves with the market in some proportional way, so if you have two stocks with two betas, figure out the coefficients to make the portfolio beta 0.9 in your case. You have two equations:β1*$stock1+β2*$stock2=0.9*$portfolio$stock1+$stock2=$portfolioSolve this linear system for the dollar (or any currency) amount in each individual asset.The calculation is much messier with a large portfolio.If you have a portfolio with several companies, you theoretically should be able to calculate the number of shares in each company by using an integer constraint for the number of shares of each stock. This would only work well if the total value of the portfolio is small. If you have thousands of shares, it wouldn't really be practical to calculate because you would need an extremely precise beta for each stock to make use of the integer constraint.It really isn't that useful anyway. The calculation is backwards.In reality, no one is figuring out what stocks they own based on a known beta. People generally know the stocks in their portfolio and don't have to solve for that. They might be interested in solving for the beta of their portfolio to estimate their risk exposure (or expected volatility). I imagine a class in school might have beta as a given and ask you to calculate your portfolio because this would demonstrate an understanding of the relationships between beta and your portfolio.In real life, “beta” is not a standardized calculation, so it couldn't very easily be a given.Beta is the coefficient of a linear regression, and the precision of the measure along with the amount of history used vary among sources. Try looking at Google vs. Bloomberg vs. Yahoo finance beta numbers, and you will see that beta can vary widely based on your assumptions. Also, beta changes all the time. Yahoo calculates beta from monthly prices over the past three years, while Bloomberg uses the past five years. I looked up the beta of Walmart as an example. Google finance lists the beta of Walmart as 0.30 while Yahoo finance lists it as 0.05. You won't be able to figure out anything useful with that kind of accuracy!
A portfolio of three stocks with total market value of $1,000,000 currently has a beta of 1.4. In light of an?
ok I see this is a homework question so giving away the solution is not going to cut it. But I will explain HOW to do the question. You first need to determine how much money must be in the last stock because you know the other two amounts. Now once you know each amount invested in each stock calculate their respective portfolio weights and recall the concept of portfolio beta: "it is simply the weighted average of all the individual betas in the portfolio" so since you know the betas of the first two stocks, you can calculate the beta for the unknown stock. NOW comes the actual question's problem solving technique: The investor wants to set the NEW portfolio beta equal to no more than 1.00 and you want combine the first two investments to calculate an equivalent beta which will acheive this. Since the last stock's beta/weight is not changing you can simply combine the two portfolio weights of the other two stocks and calculate the beta by finding their weighted average contribution to a portfolio beta of 1. Now, IF you do exactly what I have outlined, you will get the answer of 0.74 good luck.
How do you calculate portfolio weights of derivatives?
The use of “portfolio weights” goes back to Markowitz and causes any number of analytic errors when applied to assets that are not fully funded, such as derivatives. Using the margin is a poor proxy for the capital attributable to a derivatives position —— moreover, it means you are applying inconsistent capital measures between funded and underfunded assets.The best resolution of this issues is not to work with portfolio weights at all, but with dollar investments, dollar returns, dollar constraints, and dollar risks. Rephrase portfolio optimization in these terms, and you can then solve the portfolio problem using widely available optimization tools, for example I normally use the Solver built into Excel.You will lose the benefit of the closed form solutions in classical portfolio theory, but you will gain significant portfolio optimization capability as a result.