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You have decided to invest in an equally weighted portfolio consisting of American Express, Proctor and...

You have decided to invest in an equally weighted portfolio consisting of American Express, Proctor and Gamble , Home Depot, and E.I. du Pont and need to find the beta of your portfolio. Illustrate how to calculate the beta of the entire portfolio. Without adding new assets, how would you adjust the portfolio to make it more aggressive? Less aggressive

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Answer #1

Beta of the entire equally weighted portfolio can be calculated with following formula.
Since weights are same and there are four companies. hence weight = 1/4
Beta of the portfolio = 1/4* Beta of American Express + 1/4 * Proctor and Gamble + 1/4* Home Depot + 1/4 * E.I. du Pont

Without adding new assets by increasing the weight on the asset with higher beta or 100% weight on highest beta company this portfolio can be made more aggressive.

This portfolio can be made least aggressive by increasing weight of asset with least beta.


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