You think a certain stock in the gold-mining industry (stock A) is overvalued, so you plan on
Question:
You think a certain stock in the gold-mining industry (stock A) is overvalued, so you plan on shorting $10,000 of it. You would like to isolate your bet on the alpha of the stock, so you want to hedge out all your exposure to the market and to the gold-mining industry.
Stock A has a market beta of 1.1, and a gold-mining industry beta of 1.5.
Asset B (a gold-miners ETF) has a market beta of 0.8 and a gold-mining industry beta of 1.5
Asset C (SPY) has a market beta of 1 and a gold-mining industry beta of 0.2.
If you used assets B and C to get a portfolio that had a market beta and gold-mining industry beta of 0,
How many dollars would you put in Asset B?
How many dollars would you put in Asset C?
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello