AppliedNumeric answer
Hedging out the market · Part 2 of 3
A signal portfolio has a market beta of 0.3 and residual volatility of 6% a year, uncorrelated with the market. The market’s volatility is 16% a year, and the portfolio’s alpha is 3% a year.
What share of the portfolio’s variance comes from the market, in per cent?
Answer with a number. Fractions, powers and expressions like 23/6 or C(52,5) are read correctly in practice.
The worked solution is in Premium
The answer, the full working and the one idea to take away – for this and all 1,322 questions in the bank. Answer it in practice and your working is marked, with a known mistake named when you make one.
Learn the method
Risk models: covariance estimation, VaR and expected shortfall
More alpha and signal research questions
- A sample variance is 0.05, the shrinkage target is 0.04 and the shrinkage intensity is 0.3.Foundation
- You hold four uncorrelated assets in equal weight, each with 20% volatility.Applied
- A portfolio holds 50% each in two uncorrelated assets with volatilities 20% and 10%.Applied
- You estimate a covariance matrix for 500 assets from 250 days of returns. What is wrong?Advanced
- You hold 50 names at active weights of ±2%, each with 30% idiosyncratic…Advanced
- Why did regulators move from value at risk to expected shortfall?Advanced