How to Calculate the Beta of Your Investment Portfolio
What is the beta of your investment portfolio?
You own $6,069 of Human Genome stock with a beta of 3.59, $6,936 of Frozen Food Express with a beta of 2.42, and $15,895 of Molecular Devices with a beta of 0.56. What is the beta of your portfolio?
Calculating the Beta of Your Portfolio
The beta of the portfolio, consisting of investments in Human Genome, Frozen Food Express, and Molecular Devices, is approximately 1.6447. Beta measures the systematic risk of a portfolio relative to the market, indicating its sensitivity to market movements.
To calculate the beta of a portfolio, you need to consider the weights of each stock in the portfolio and their respective betas. In this case, let's assume the total value of the portfolio is the sum of the investments in each stock: $6,069 + $6,936 + $15,895 = $28,900.
Now, let's calculate the weight of each stock in the portfolio:
Human Genome: $6,069 / $28,900 = 0.2102
Frozen Food Express: $6,936 / $28,900 = 0.2399
Molecular Devices: $15,895 / $28,900 = 0.5499
Next, multiply the weight of each stock by its respective beta:
Human Genome: 0.2102 * 3.59 = 0.7552
Frozen Food Express: 0.2399 * 2.42 = 0.5816
Molecular Devices: 0.5499 * 0.56 = 0.3079
Finally, sum up the weighted betas of each stock to find the beta of the portfolio:
0.7552 + 0.5816 + 0.3079 = 1.6447
Therefore, the beta of your portfolio is approximately 1.6447.