Robust Monitoring of CAPM Portfolio Betas †MyAssignmenthelp.com

Question: Discuss about the Robust Monitoring of CAPM Portfolio Betas. Answer: Introduction: Portfolio represents the combination of two or more stocks that either trade on same stock exchange or belong to different stock exchange. Risks and return that portfolio provides to the investor is certainly dependent upon the risk and return of the individual stock and weight of each of stock in portfolio. Risk is of mainly type systematic risk and unsystematic risk. Unsystematic risk refers to that risk that is associated with the industry in which that particular stock belongs to. The unsystematic risk can be diversified through diversifying the investment through use of portfolio. So it can be said that only systematic risk can be mitigated through use of proper finance tool. There is no way through which the systematic risks can be mitigated as these types of risk are not in control of the investment (Chocholaa, Hukov and Zuzana, 2012). As it required to from a portfolio of two or more stocks that can provide us with good return and minimum risk as compare to individual stocks. Below is the group of 5 companies that has been selected for portfolio purpose. In the below portfolio five companies has been selected with equal weights and following are the results (Patton and Timmermann, 2010). Portfolio Weighted Return and Beta Company Expected return of Company Beta Weights Weighted Return Weighted Beta QAN 6.66% 0.245 20% 1.33% 0.0489718 WFD 5.70% 0.156 20% 1.14% 0.0312724 ANZ 4.54% 0.050 20% 0.91% 0.009975 WOW 4.45% 0.042 20% 0.89% 0.008335 CBA 4.78% 0.072 20% 0.96% 0.0144469 100% 5.23% 0.113001 The beta of the complete portfolio is 0.11 which is less form the overall individual stocks. The expected return of the portfolio is 5.23% is average looking at the expected returns of the individual stocks (Zimmerman and Yahya-Zadeh, 2011). References Chocholaa, O., Hukova, M., and Zuzana, P. 2012. Robust monitoring of CAPM portfolio betas. Journal of Multivariate Analysis, 115, pp. 374-395. Patton, A.J. and Timmermann, A. 2010. Journal of Financial Economics. Journal of Financial Economics, 98, pp. 605-625. Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control.Issues in Accounting Education,26, pp.258-259.