Fast Train of Miami Regression Equation Questions

Description

1. Suppose you have $1000 to invest and are using two stocks (A and B) to construct a market-neutral portfolio. Based on your analysis, the weight for A = 37.4 (attention, it is 37.4, not 37.4%),

calculate the weight for B.
What do those numbers (the two weights) mean?

2. If based on the CAPM regression on Facebook during 2017 – 2018, we get the following regression equation:

y = 0.005 + 1.26x

What is Facebook’s alpha? What is its historical beta? What is Facebook’s future beta?
What is your judgement about Facebook based on the performance in 2017-2018? Is it a good investment according to the criteria we mentioned in the class?

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