Given that the CFAI exam is probably going to ask a lot of conceptual rather than numerical questions, I’ve been trying to gear up to to that. Having just re-read the bit on Commodities and Alternative investments, we see that commodities and the companies that sell them (i.e. Shell, BP, etc) provide good exposure to economic growth (as production rises during Boom periods raw material consumption rises, and likewise falls during recessions). Given this, would you say that the Beta of an oil company is greater than/equal to 1? Now, just taking oil/gas for example, the fact that oil / gas prices have experienced phenomenal growth in the past 9-12mths, so that the returns on oil equities are likely to buck the flagging trend of the rest market, doesn’t this make oil company’s less sensitive to the market return: Beta<1 ?? Don’t think there’s a definitive answer out there (prove me wrong?), just wanted to know how you guys would answer this
Nobody is going to ask you to guesstimate a beta. Beta is an empirical # and if anyone ever asks you what a beta is just shrug and say which beta and give me the data…
I would say, since the market, the most diversified portfolio, has a beta of 1, a company that has most of its assets caught in risky projects should not be safer than the market
makes sense map1, just wanted to understand how other people’s logic works on this