What is the beta of your portfolio?

Question

You have a portfolio with 3 stocks. $40,000 is invested in a stock A with a beta of 0.7 and $ 35,000 invested in a stock B with a beta of 1.2 and $25,000 invested in stock C with a beta of 1.15.

Answer 1

We first weight each stock against the value of the full portfolio. With the weights, we multiply by the beta of each stock to get the weighted beta. The sum of the weighted Beta is the portfolio Beta. Seeing that the total value of the portfolio is $100000, the weight of stock A will be calculated by dividing 40000 by 100000 to get 40%.

Value Weight Beta Weighted Beta

Stock A 40000 0.40 0.7 0.28

Stock B 35000 0.35 1.2 0.42

Stock C 25000 0.25 1.15 0.2875

100000

Portfolio Beta 0.9875