What is a beta portfolio?
Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
What kinds of investments have a negative beta?
A standard example that is offered for a negative beta investment is gold, which acts as a hedge against higher inflation (which devastates financial investments such as stocks and bonds). It is also true that puts on stocks and selling forward contracts against indices will have negative betas.
Is it possible for a risky asset to have a beta of 0?
The answer is no. A risky asset cannot have a beta of zero because such a beta is reserved exclusively for risk-free securities. The beta equal to zero reflects an instrument whose return does not respond to changes in the market.
What would have a beta of 0?
Beta of 0: Basically, cash has a beta of 0. In other words, regardless of which way the market moves, the value of cash remains unchanged (given no inflation). Beta between 0 and 1: Companies that are less volatile than the market have a beta of less than 1 but more than 0. Many utility companies fall in this range.
Is it possible to construct a risk-free portfolio?
Yes it is A possible to construct a portfolio of stocks that has an expected return equal to the risk-free rate. Such kind of portfolios are also called zero beta portfolio that have zero systematic risk.
What is a good Alpha for a portfolio?
An alpha of -15 means the investment was far too risky given the return. An alpha of zero suggests that an asset has earned a return commensurate with the risk. Alpha of greater than zero means an investment outperformed, after adjusting for volatility.
What does a high negative beta mean?
In general, high beta means high risk, but also offers the possibility of high returns if the stock turns out to be a good investment. A negative beta coefficient, on the other hand, means the investment moves opposite of market direction.
Is it possible to construct a risk free portfolio?
Can you build a portfolio with zero standard deviation?
It’s possible to construct a portfolio with 0 variance of expected returns. The expected return, variance and standard deviation of your portfolio’s return is always 0 as well.
