Beta Management Company

Satisfactory Essays
Calculate the variability (standard deviation) of the stock returns of California REIT and Brown Group during the 2 years. How variable are they compared with Vanguard Index 500 Trust? Which stock appears to be the riskiest?

Vanguard Index 500 Trust California REIT Brown Group
STDEV 4.61% 9.23% 8.17%

Based on the above, the riskiest stock would appear to be California REIT.

Suppose Beta’s position has been 99% of equity funds invested in the index fund, and 1% in the individual stock. Calculated the variability of this portfolio using each stock. How does each stock affect the variability of the overall equity investment, and which stock is riskiest in this context? Explain how this makes sense in view of your answer to Question (1) above.

σ^2= w_1^2 σ_1^2+w_2^2 σ_2^2+2w_1 w_2 Cov(r_1 r_2)

Vanguard, REIT Vanguard, Brown
Covariance 0.0003 0.0024

Index Fund % Ind Stock % 99% 1% California REIT Brown Group
Variability(STDEV) 4.5676% 4.6119%

Based on this context, Brown Group is a bit riskier. In looking at the covariance calculation, the covariance of Vanguard/Brown is a fair bit larger that the covariance of Vanguard/California REIT. As a result, it increases the risk of Vanguard/Brown

Perform a regression of each stock’s monthly returns (as the y variable) on the index fund returns (as the x variable) to compute the  for each stock (the slope of the regression). How does this relate to the situation described in Question #2 above?

REIT Brown
Intercept -0.024278716 -0.01953843
Vanguard Index 500 Trust 0.147351433 1.163349646

The Beta for Brown is higher, so it makes sense that it is a riskier security.

How might the expected returns for each stock relate to their respective levels of riskiness?

Brown should have a higher expected return as it is more riskier. An investor would demand additional return for the additional risk being taken. Using the equation RE = RF + RM – RF), the expected returns

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Beta Management Company

    • 380 Words
    • 2 Pages

    most 8 times of that between the Vanguard and California REIT stock. The portfolio includes Grown Group stock is riskier. Question 4: To compute Beta, it follows the formula | California REIT | Grown Group | Beta | 0.14 | 1.16 | The result is consistent with question 3. The Grown Group stock has a higher beta so it is riskier. It is more sensitive to the market factor. Question 5: The Grown Group stock should have a higher expected return because it…

    • 380 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Beta Company

    • 848 Words
    • 4 Pages

    Managerial Accounting WRITTEN ANALYSIS OF THE CASE BETA COMPANY SYNOPSIS Beta Company produces two Product A and B and standard costs of each product were predetermined by management. During November actual production for Product A was 4,200 units while Product B was 3,600 units. For material X, 39,000 pounds were purchased at $14.40 and for material Y, 11,000 pounds were purchased at $9.70. Variance analysis for actual cost versus standard cost should be prepared for the said month…

    • 848 Words
    • 4 Pages
    Powerful Essays
  • Good Essays

    Beta Management

    • 790 Words
    • 4 Pages

    Beta Management Group is a small investment management company based in Boston, which was founded by Ms. Sarah Wolfe (The founder and CEO of the Beta Management Group) in 1988. Ms. Wolfe follows a market timing investment strategy based on two portfolios; the Vanguard index and money market instruments. The goals of Beta Management were to enhance returns but reduce risks for clients via market timing. Ms. Wolfe would keep the vast majority of Beta’s funds in no-load, low-expense index funds; and…

    • 790 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Beta Management

    • 1150 Words
    • 5 Pages

    CASE STUDY : Beta Management Company The Context Beta Management Group is a small investment management company based in Boston. It was founded in 1988 by Ms. Sarah Wolfe (The founder and CEO of the Beta Management Group). Ms. Wolfe follows a market timing investment strategy based on two portfolios; the Vanguard index and money market instruments. The goals of Beta Management were to enhance returns-but-reduce risks for clients via market timing. Majority of Beta’s…

    • 1150 Words
    • 5 Pages
    Good Essays
  • Good Essays

    Beta Management

    • 915 Words
    • 4 Pages

    Beta Management Summary of facts: Beta Management is new, small mutual fund that is run by Ms. Wolfe. She has recently begun to work full time at her mutual fund due to its increasing growth. With the fund’s increasing growth over the past year Ms. Wolfe has started to have inquiries from larger mutual funds wanting her to manage some of their money. Ms. Wolfe does not have much experience in managing money and needs some advice on how to deal with the larger institutions. Problem: Beta Management…

    • 915 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    Beta Management

    • 1129 Words
    • 8 Pages

    BETA MANAGEMENT COMPANY Q1. Calculate the variability (standard deviation) of the stock returns of California REIT and Brown Group during the past 2 years. How variable are they compared with Vanguard Index 500 Trust? Which stock appears to be riskiest? The stock returns for each month are given in Table 1. Based on the monthly returns, the standard deviation or variability of each stock has been calculated. The standard deviation for California REIT is 9.23% and the standard deviation for Brown…

    • 1129 Words
    • 8 Pages
    Powerful Essays
  • Powerful Essays

    Case Study Beta Management

    • 1101 Words
    • 4 Pages

    Investments Case Study 1- Beta Management Company Tanya Mengyao Tang Dylan William Sizemore Gaebulwe Seretse Business Purpose and Clients of Beta Management The main business purpose of Beta Management is to “enhance returns but reduce risks for clients via market timing,” which is also one of their stated goals. Thus, Ms. Wofle aims to invest in the index during bull markets and exit from the index during bear markets. Ms. Wolfe, a market strategist, picked the name Beta Management to align to the company’s…

    • 1101 Words
    • 4 Pages
    Powerful Essays
  • Satisfactory Essays

    Beta

    • 285 Words
    • 1 Page

    2nd Period Compare and Contrast When I first read “Harlem” by Langston Hughes and “Hope is the thing with feathers” by Emily Dickinson I saw more similarities than differences. But, after i read them a few more times I realized that there were more differences than similarities. One is really positive and the other negative. “Harlem” is a sad poem. The way the poem states what happens to a dream which has been given up. it says that once a dream is given up that people forget about their dream…

    • 285 Words
    • 1 Page
    Satisfactory Essays
  • Good Essays

    Raw Beta

    • 448 Words
    • 2 Pages

    bloomberg beta interpretation Beta definition A measure of an asset's risk in relation to the market (for example, the S&P500) or to an alternative benchmark or factors. Roughly speaking, a security with a beta of 1.5, say, will move 50% more than the market. So if the market goes up by 20% the security’s price will go up by 30%. According to asset pricing theory, beta represents that part of the risk of the security called systematic risk that cannot be diversified away. When using beta, there are…

    • 448 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Beta carotene

    • 494 Words
    • 3 Pages

    Extraction and Quantitative Determination of B-Carotene Introduction The study of B-Carotene is important because it is good for vision, immunity, and overall health. The purpose of this experiment is to extract and find quantitative amount of Beta-carotene from a carrot sample. The raw product(carrots) was extracted using simple distillation. The purity of the product will be characterized using percent yield, thin layer chromatography, Beer's Law, and UV-vis. Beer's law is used because in this…

    • 494 Words
    • 3 Pages
    Satisfactory Essays