Selender has 200 million dollars under management. He is long 100,000 shares of stock A which is priced at 20 dollars per share. He is short 50,000 shares of Stock B, which is trading at 40 dollars per share. What are his net and gross dollar exposures in dollar terms and percentage-wise of the AUM? If the Beta of stock B is greater than the Beta of stock A, what can we say about the Beta of the Selender’s portfolio? Suppose Stock A falls to 15$ and stock B rises to 45$, and Selender does not change his positions, how much has Selender won or lost? What is his new net and gross dollar percentage exposure? Assume now that instead of the Beta of stock A being greater than the Beta of stock B, the Betas of the two stocks are equal? What can we say now about the Beta of the portfolio after the price movements?
