You currently own a stock portfolio that has a beta of 1.2. If you fully hedge your stock portfolio you will effectively change the portfolio's beta to which one of the following?
A)0
B)1
C)1 / 1.2
D)1.2
E)1.22

Question

Quizplus · Accepted Answer

Fully hedging a stock portfolio means to take an opposite position in a stock index or futures contract to offset any potential losses in the portfolio. By fully hedging, the portfolio's beta will become zero which means there will be no systematic risk associated with the portfolio.

You Currently Own a Stock Portfolio That Has a Beta