How to Calculate Portfolio Beta Effectively

What is the portfolio beta?

Given that you own a stock portfolio invested 22% in Stock Q, 23% in Stock R, 42% in Stock S, and 13% in Stock T, with betas for these four stocks as .88, .94, 1.34, and 1.79 respectively, what is the portfolio beta?

Final answer:

The portfolio beta is approximately 1.2043.

To calculate the portfolio beta, we need to multiply the weight of each stock by its beta and sum up the results. We can calculate it using the following formula:

Portfolio beta = (Weight of Stock Q * Beta of Stock Q) + (Weight of Stock R * Beta of Stock R) + (Weight of Stock S * Beta of Stock S) + (Weight of Stock T * Beta of Stock T)

Plugging in the values, we get: Portfolio beta = (0.22 * 0.88) + (0.23 * 0.94) + (0.42 * 1.34) + (0.13 * 1.79)

Simplifying the equation gives us: Portfolio beta = 0.1936 + 0.2152 + 0.5628 + 0.2327 = 1.2043

Therefore, the portfolio beta is approximately 1.2043.