You own a stock portfolio invested 33% in Stock Q, 20% in Stock R, 37% in Stock S, and 10% in...

Question:

You own a stock portfolio invested 33% in Stock Q, 20% in Stock R, 37% in Stock S, and 10% in Stock T. The betas for these four stocks are 1.02, 1.08, 1.48, and 1.93, respectively.

What is the portfolio beta?

Portfolio Beta and Diversification:

Through diversification, a portfolio could reduce its exposure to non-systematic risks. As a portfolio is more and more diversified, the beta of the portfolio will converge to one, which is the beta of the overall market portfolio.

Answer and Explanation:

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Using the Systematic Risk Principle & Portfolio Beta

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Chapter 12 / Lesson 3
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In this lesson, we'll discuss how investors must understand the systematic risk principle in their portfolio. We'll also explain how investors can measure and define the risk of their portfolios using betas.


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