Business, 21.05.2020 00:11 Sallyjoe8381

The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 2.4% over the coming month. Beta R-square Standard Deviation of Residuals 0.75 0.65 0.07 (i. e., 7% monthly) a-1. If he holds a $3 million portfolio of Waterworks stock, and wishes to hedge market exposure for the next month using 1-month maturity S&P 500 futures contracts, how many contracts should he enter? The S&P 500 currently is at 1,000 and the contract multiplier is $250.

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