Business, 06.05.2021 17:50 joseph345637

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. Construct a portfolio that is short $10,000 of stock A, with weights in asset B and C such that your portfolio has no exposure to the stock market, or to the gold mining industry (ie. the gold-mining beta and the market beta of the portfolio should both be 0). In this perfectly hedged portfolio, how many dollars do you have in asset B?

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You think a certain stock in the gold-mining industry (stock A) is overvalued, so you plan on shorti...

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