What is the beta of a stock whose covariance with the market portfolio return is 0.0045 if the variance of the return on the market portfolio is 0.002?
To calculate the beta of a stock, you need to know the covariance of the stock's returns with the market portfolio returns, as well as the variance of the market portfolio returns.
In this case, the covariance between the stock's returns and the market portfolio returns is given as 0.0045, and the variance of the market portfolio returns is given as 0.002.
The formula to calculate beta is as follows:
Beta = Covariance(stock, market) / Variance(market)
Therefore, you can calculate the beta by dividing the covariance of the stock with the market portfolio returns (0.0045) by the variance of the market portfolio returns (0.002):
Beta = 0.0045 / 0.002
Beta = 2.25
Therefore, the beta of the stock is 2.25.