Rodrigo is interested to add stock of Brescia Bhd into his portfolio. Brescia is a stock listed
Question:
Rodrigo is interested to add stock of Brescia Bhd into his portfolio. Brescia is a stock listed in the Bursa Malaysia and its annual average rates of return for the last five years relative to the market index are available for analysis in the Table 1. Meanwhile, the details of his current portfolio position is available in Table 2.
Table 1: Annual average rates of return
Rates of return (%) | ||
Year | Brescia Berhad | KLCI Index |
2015 | 20 | 15 |
2016 | 5 | 10 |
2017 | 10 | 18 |
2018 | -15 | 6 |
2019 | -10 | -12 |
Table 2: Current portfolio position
Value (RM) | Expected return | St. Deviation | Beta | |
Bond of Cagliari Bhd | 20,000 | 6% | 15% | 0.85 |
Stocks of Lecce Holdings | 20,000 | 5% | 10% | 2.5 |
Correlation coefficient between Cagliari and Lecce is 0.45 Expected correlation coefficient between Brescia and Lecce is -0.55 Expected correlation coefficient between Brescia and Cagliari is 0.20 |
- Calculate the portfolio beta if Rodrigo spend RM10,000 to add stock Brescia in his portfolio.