Beta Management Co

Posted by markwahl barg on May 22nd, 2018

Beta Management Co

Questions Covered

What is Wolfe’s current investment strategy?  What kind of adjustment is she considering?

Calculate the variability (standard deviation) of the stock returns of California REIT (CREIT) and Brown Group (BG) during the past two years.  How variable are they compared with Vanguard Index 500 Trust?  Which stock appears to be riskiest?

Suppose Beta’s position had been 99% of equity funds invested in the index fund, and 1% in the individual stock.  Calculate the variability of this portfolio using each stock.  How does each stock affect the variability of the equity investment, and which stock is riskiest? Explain how this makes sense in view of your answer to Question 2 above.

Perform a regression of each stock’s monthly returns on the Index returns to compute the “beta” for each stock.  This regression is called the Market Model in the literature.  How does this relate to the situation described in Question 3 above?