1. If one of your stocks has a relatively high beta of 1.4 and is
currently doing exceedingly well, why would you want a stock in your
portfolio with a relatively low beta of 0.7 that has been recently
under-performing? By diversifying your investments according to betas,
have you entirely moved the potential risk of losses due to a
declining stock market?

2. If you are relatively risk adverse, would you requrie a higher beta
stock to induce you to invest than the beta required by a person more
willing to take risks?  Explain.

3. Is it possible to construct a portfolio that is risk free? Explain.

Hi!!

I found the answer to your question at Term Paper Genie site.
Due copyright restrictions I cannot reproduce it here but you can read
it at this page:
"Risk Management"
http://www.termpapergenie.com/risk_management.html


For additional reference see:
"Beta: Know the Risk" by Ben McClure
http://www.investopedia.com/articles/stocks/04/113004.asp

"Overcoming Risk":
http://www.angelfire.com/oh5/franktaylor/FrankOvercomingRisk.html


For more advanced references see:
"Encyclopedia: Modern portfolio theory"
http://www.nationmaster.com/encyclopedia/Modern-portfolio-theory

"Portfolio Analysis and Diversification"
Copyright 1997 by Campbell R. Harvey and Stephen Gray. All rights
reserved. No part of this lecture may be reproduced without the
permission of the authors.
http://www.duke.edu/~charvey/Classes/ba350_1997/diverse/diverse.htm



Search strategy:
"risk adverse" portfolio diversification beta
"risk free" portfolio diversification


I hope you find the linked text useful. Feel free to request for a
clarification if you need it, I will gladly respond your requests for
further assistance on this question.

Regards.
livioflores-ga

Thanks so much for your research and additional helpful websites.