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Zero Beta

The document analyzes a two-asset portfolio with varying means, standard deviations, and correlations. It models the efficient frontier and minimum variance portfolio for different allocations of the two assets. Key details include: - Asset 1 has 5% mean return and 3% standard deviation - Asset 2 has 15% mean return and 20% standard deviation - The portfolio is modeled across a range of correlations from -1 to 1 - The minimum variance portfolio allocates 60.17% to Asset 2

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overhear sby
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50 views4 pages

Zero Beta

The document analyzes a two-asset portfolio with varying means, standard deviations, and correlations. It models the efficient frontier and minimum variance portfolio for different allocations of the two assets. Key details include: - Asset 1 has 5% mean return and 3% standard deviation - Asset 2 has 15% mean return and 20% standard deviation - The portfolio is modeled across a range of correlations from -1 to 1 - The minimum variance portfolio allocates 60.17% to Asset 2

Uploaded by

overhear sby
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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Zero-Beta.

xls
Two Assets Economy
Asset 1 2 Two Asset Portfolio
Mean Returns 5% 15%
20.0%
Standard Deviations 3% 20%
18.0%
Correlation 0.50
16.0%
14.0%
alpha standard deviamean return 12.0%

Mean Return
-0.50 8.7% 0.0% 10.0%
-0.48 8.2% 0.3% 8.0%
-0.45 7.8% 0.5% 6.0%
-0.43 7.4% 0.8% 4.0%
-0.40 6.9% 1.0% 2.0%
-0.38 6.5% 1.3% 0.0%
-0.35 6.1% 1.5% 0.0% 5.0% 10.0% 15.0% 20.0%

-0.33 5.7% 1.8% Standard Deviation


-0.30 5.3% 2.0%
-0.28 4.9% 2.3% Suppose the market portfolio of risky securities
-0.25 4.5% 2.5% alpha 1-alpha
-0.23 4.1% 2.8% 0.50 0.50
-0.20 3.8% 3.0% Then
-0.18 3.5% 3.3% \bar{R}_m 10.00%
-0.15 3.2% 3.5% \sigma_m 10.83%
-0.13 3.0% 3.8% What value of R_f makes this the tangent portf
-0.10 2.9% 4.0% R_f 4.00%
-0.08 2.8% 4.3% The Security Market Line has intercept .04 a
-0.05 2.8% 4.5% The return and standard deviation of the zero b
-0.03 2.9% 4.8% \bar{R}_z 4.00%
0.00 3.0% 5.0% \sigma_z 2.88%
0.03 3.2% 5.3% To see that the zero beta portfolio is inefficient
0.05 3.5% 5.5% the minimum variance portfolio is given by
0.08 3.8% 5.8% investing alpha = 0.06017 in asset 2 and 1-alph
0.10 4.1% 6.0% \bar{R}_e 4.40%
0.13 4.4% 6.3% \sigma_e 2.78%
0.15 4.8% 6.5%
0.18 5.2% 6.8%
0.20 5.6% 7.0%
0.23 6.0% 7.3%
0.25 6.4% 7.5%
0.28 6.9% 7.8%
0.30 7.3% 8.0%
0.33 7.7% 8.3%
0.35 8.2% 8.5%
0.38 8.6% 8.8%
0.40 9.0% 9.0%
0.43 9.5% 9.3%
0.45 9.9% 9.5%
0.48 10.4% 9.8%
0.50 10.8% 10.0%
0.53 11.3% 10.3%
0.55 11.7% 10.5%
0.58 12.2% 10.8%
0.60 12.6% 11.0%
0.63 13.1% 11.3%
0.65 13.6% 11.5%
0.68 14.0% 11.8%
0.70 14.5% 12.0%
0.73 14.9% 12.3%
0.75 15.4% 12.5%
0.78 15.8% 12.8%
0.80 16.3% 13.0%
0.83 16.8% 13.3%
0.85 17.2% 13.5%
0.88 17.7% 13.8%
0.90 18.2% 14.0%
0.93 18.6% 14.3%
0.95 19.1% 14.5%
0.98 19.5% 14.8%
1.00 20.0% 15.0%
1.03 20.5% 15.3%
1.05 21.0% 15.5%
1.08 21.5% 15.8%
1.10 22.0% 16.0%
1.13 22.5% 16.3%
1.15 23.0% 16.5%
1.18 23.5% 16.8%
1.20 24.0% 17.0%
1.23 24.5% 17.3%
1.25 25.0% 17.5%
Two Asset Portfolio

5.0% 10.0% 15.0% 20.0% 25.0% 30.0%


Standard Deviation

et portfolio of risky securities is given by the choice

makes this the tangent portfolio?

rket Line has intercept .04 and slope 6/11


ndard deviation of the zero beta portfolio are

o beta portfolio is inefficient, notice that


ance portfolio is given by
0.06017 in asset 2 and 1-alpha in assset 1.

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