An investor is holding an equity portfolio worth 1.5 million. The investor is interested in hedging against movements in the market over the next three months and decides to use the three months Mini S&P 500 futures contract. The index is currently trading at 886.6 and one contract is for delivery of $50 times the index. Furthermore, the beta of the portfolio is 1.3 and the risk free is 6% and that the S&P does not pay dividend.

What strategy should the investor follow if he wants to create portfolio with beta equal to 2? Buy or sell futures to be specific? How many contracts will be needed? Verify your hedge if in a month the S&P drops by 5%? Briefly explain your final gain or loss.