Question

1. What is beta?

1. a. What would you expect from a low or high beta portfolio?  
2. b. What type of macroeconomic regimes would help or hurt each portfolio?
3. c. How to determine if a portfolio is diversified?

Answer 1

Beta means it is the value which measures the volatility, or the systematic risk of any portfolio. According to the statistics beta is the representation of slope of the regression of data point to an individual stock of portfolio return against market.

When the volatility of any stock is more or fluctuation is more then the beta value is more than one. A stock having less volatility or less fluctuation would have its beta value less than one. Through this it concludes that the portfolio have less beta value is less risky and we give less returns and on the other hand the more beta value portfolio would be more risky and like to give more returns.

The best way to determine the well diversified portfolio is when the money is invested in different securities. This is done to reduce the risk in the portfolios. An investor investing all the money in one securities is more risky as if in case there is a fall in the particular sector securities the investor might face losses. Where as an investor investing in different sectors securities will divide the risk in different securities and if in case one sector shows downfall other sectors would give returns to the investor.

Therefore diversification while investing in securities is the best way to manipulate the risk and returns.