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What do you do with each of these portfolios based on alpha

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Reference no: EM133052462

Question - Suppose you own a number of stocks that are included in a hypothetical index called EFX 250, which can be thought of as a market proxy.

You are currently analyzing two other portfolios, known as Aggressive Equity (AE) and Bullish Time (BT)

During 2020, AE reported a 17.5% profit (return) and BT reported a 12% gain; at the same time, EFX250 makes a profit 14%. It is estimated that the same benefits will also be enjoyed in 2021. The standard deviations for the AE, BT and eFX250 are each 25%, 10% and 15%.

The reported betas for AE and BT are 1.2 . each and 0.95; Meanwhile, the risk-free interest rate (Rf) is 5%.

Required -

a. If your boss asks to add only 1 portfolio, which one would you recommend? Explain your recommendation.

b. If you had the freedom to choose between the two portfolios, what would you do? What do you do with each of these portfolios based on Alpha?

Reference no: EM133052462

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