Introduction
Investment is a tricky aspect of business operations especially for investors. In most cases, investors are forced to invest in a variety of stocks and bonds for the purposes of diversifying their risks. However, investing in different or a wide range of portfolio requires adequate knowledge regarding the financial markets. In addition, investors need to have an adequate and efficient development of a portfolio that would include stocks and bonds from different corporations with the aim of diversifying risks. Based on such convictions, the following is a development of a portfolio that contains investment securities from 3 Fortune 500 stocks and 3 AAA corporate bonds.
Criteria for Portfolio Development
The criteria employed in developing or constructing this portfolio includes investor demographics, asset allocation strategy and risk tolerance. It is important for any would-be investor to identify specific criteria upon which portfolios are to be developed in a bid to ensure adequate gains and diversification of risks. Each criterion would determine the amount of money invested in one stock or security in comparison to other stocks or securities. The following portfolio is developed on the basis of investor’s demographics where a total of $10,000 is invested across all the three stocks.
Stock Portfolio and Weighted Average Beta
The stocks or securities picked include Exxon Mobil, Wal-Mart Stores and Chevron. These stocks have evidently performed very well and according to Fortune 500 they are ranked first, second, and third respectively. Therefore, investing in the stocks of each of these companies will definitely provide a positive return. The following tables provide an overview of financial performance of the identified corporations.
Exxon Mobil Financial Information (Finance.yahoo.com, 2012a)
Wal-Mart Stores Financial Information (Finance.yahoo.com, 2012b)
Chevron Financial Information (Finance.yahoo.com, 2012c)
Calculating the Weighted Average Beta
Weighted average beta is obtained by calculating the betas for each of the above stocks in relation to the amount invested in each stock. Assuming that the criterion employed is the investor’s demographics, the following information provides an overview of how the investment of $10,000 would be distributed. All the betas of each of the listed stocks are obtained from Yahoofinance.com.
Therefore, the weighted average beta would be 0.7495, which is approximately 0.75. Each beta of the stocks is multiplied by the weight of investment (amount invested in each stock divided by the total amount of investment) and the total is obtained, which refers to the weighted average beta as indicated in the above calculations.
Nonetheless, it is important to note that the portfolio construction is likely to affect the allocation strategy hence the weighted average beta. For instance, the above calculations are based on the investor’s demographics. If the criterion for allocating the amount invested is changed then there is a likelihood that the entire portfolio construction will change. Therefore, it is evident that portfolio construction and development largely or significantly depend on the criterion applied in its development or construction.
References
Finance.yahoo.com (2012a). Exxon Mobil Corporation (XOM)-NYSE. Retrieved on March 18, 2013 from http://finance.yahoo.com/q/ks?s=xom
Finance.yahoo.com (2012b). Wal-Mart Stores Inc. (WMT)-NYSE. Retrieved on March 18, 2013 from http://finance.yahoo.com/q?s=WMT&ql=0
Finance.yahoo.com (2012c). Chevron Corporation (CVX)-NYSE. Retrieved on March 18, 2013 from http://finance.yahoo.com/q?s=CVX&ql=0
