Question

Nancy is trying to create a portfolio of two stocks that would move with the overall...

Nancy is trying to create a portfolio of two stocks that would move with the overall market. The four stocks and their correponding Betas are as follows:

Apple: Beta: 1.17

AT&T: .67

Salesforce: 1.35

Con Edison: .24

Of the two stocks portfolios listed below, which choice portfolio would move closely with the overall market?

Portfolio of Salesforce & AT&T

Portfolio of AT&T and Con Edison

Portfolio of Salesforce & Con Edison

Portfolio of Salesforce and Apple

Note: this question has two answer A and D on chegg.which one is correct?

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Answer #1

The correct answer is "Portfolio of Salesforce & AT&T"

A portfolio will react as market when the portfolio beta will be close to 1.

Portfolio Beta = Average Beta of Stocks

= (Beta of Salesforce + Beta of AT&T) / 2

= ( 1.35 + 0.67) / 2

= 2.02 / 2

= 1.01

As the combination of the above mentioned stocks are bringing the beta of the portfolio close to 1, so the portfolio will react like the market closely.

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