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Reducing beta of a portfolio of shares

Secondary Mkt 416 views 1 replies

Prachi Srivastava

Finance

368 Points Joined November 2011

Hi All,

I came across one problem in Advance Financial Management while reading for ICWAI Final.

In that, current Beta for portfolio of shares is 1.19.The SPOT Nifty Index is at 1350 and futures price is 1352.Question is how to reduce beta to 0.8.

Answer is, Sell index futures to reduce Beta and buy Index futures to increase Beta. Can anyone please help me in understanding, why this action is done?

Replies (1)

CA Saroj Kumar

Keen to learn something new every moment

2588 Points Joined June 2010

Mam as per ur questiuon

Current beta is 1.19 it means ur portfolio is carring 19% extra risk as compared to market risk. Hence to get reduced the beta u have to sale the ur portfolio and invest in less risky securities.