Calculate the Portfolio Beta
What is the portfolio beta for a stock portfolio invested in different stocks?
You own a stock portfolio invested 22 percent in stock q, 23 percent in stock r, 42 percent in stock s, and 13 percent in stock t. The betas for these four stocks are .88, .94, 1.34, and 1.79, respectively. What is the portfolio beta?
Portfolio Beta Calculation:
The portfolio beta would be 1.21 (rounded to 2 decimal places).
Portfolio beta is a measure of the systematic risk of a portfolio of investments. It is calculated by taking the weighted average of the betas of the individual investments in the portfolio, with each weight equal to the proportion of the portfolio invested in that particular investment.
To calculate the portfolio beta, we need to use the weighted average of the betas of each stock in the portfolio, where the weights are the percentage of the portfolio invested in each stock:
Portfolio beta = (0.22 x 0.88) + (0.23 x 0.94) + (0.42 x 1.34) + (0.13 x 1.79)
Portfolio beta = 0.1936 + 0.2162 + 0.5628 + 0.2327
Portfolio beta = 1.2053
Therefore, the portfolio beta is 1.21 (rounded to 2 decimal places).