RedRock, a Hong Kong based hedge fund manager specialising in technology investment, is holding an aggregate portfolio of HK and US stocks. The manager expects the stock market as a whole to have a correction over the following two to three weeks. Details of the portfolio are given as of 28 February 2022. USD/HKD exchange rate is quoted at 7.8000. Stock Code Stock Name Currency Price Market Cap. (B) No. of Shares Beta 0005 0388 0700 1810 2269 2318 2382 3690 9618 9988 HSBC HKEX Tencent Xiaomi WuXi Biologics Ping An Insurance Sunny Optical Meituan JD.com Alibaba HKD HKD HKD HKD HKD HKD HKD HKD HKD HKD 54.10 377.60 421.20 14.66 109.40 60.40 186.70 172.20 279.20 104.20 1,096.00 478.74 4,046.00 366.03 64.25 1,133.00 204.78 1,056.00 871.07 2,240.00 300,000 30,000 30,000 800,000 600,000 500,000 100,000 50,000 50,000 100,000 0.58 0.90 0.49 1.40 1.08 0.93 1.01 1.00 0.69 0.83 AAPL AMZN FB GOOG IBM INTC MSFT MRNA TSLA TWTR Apple Amazon Meta Platforms Alphabet IBM Intel Microsoft Moderna Tesla Twitter USD USD USD USD USD USD USD USD USD USD 165.12 3,071.26 211.03 2,697.82 122.51 47.70 298.79 153.60 870.43 35.55 2,659.00 1,563.00 574.41 1,783.00 194.23 220.94 2.240.00 62.28 899.60 28.46 20,000 1.19 1,000 1.13 10,000 1.29 1,500 1.03 23,000 49,000 13,000 0.89 10,000 1.48 4,000 2.01 50,000 0.75 1.09 0.54 The following prices obtained from the futures markets as of 28 February 2022. The contract specifications and other relevant information can be found in the Hong Kong Exchange and Clearing website, www.hkex.com.hk, and the CME Group website, www.cmegroup.com. Futures Contract Spot Mar-2022 Apr-2022 Jun-2022 Sep-2022 Hang Seng Index Hang Seng TECH Index Hang Seng China Enterprises Index 22,713 5,113 8,024 22,657 5,126 8,031 22,648 5,128 8,036 22,383 5,133 7,941 22,162 5,136 7,856 E-Mini S&P 500 E-Mini Nasdaq-100 E-Mini Dow Jones Industrial 4,373.75 14,237.81 33,892.60 4,370 14,218.00 33,843.00 4,362 14,210.00 33,744.00 4,360 14,200.00 33,435.00 a) Calculate the values of HK portfolio and US portfolio, respectively. (2 marks) b) Calculate the weights of individual stocks. (10 marks) c) Calculate the betas of HK portfolio, US portfolio and the aggregate portfolio, respectively. (3 marks) d) The fund manager would like to reduce the market risk exposure by selling shares. Why is it impracticable to do so? Explain in details what hedging strategy you would recommend the hedge fund. Give reasons for your choice of derivatives contracts. (10 marks) RedRock, a Hong Kong based hedge fund manager specialising in technology investment, is holding an aggregate portfolio of HK and US stocks. The manager expects the stock market as a whole to have a correction over the following two to three weeks. Details of the portfolio are given as of 28 February 2022. USD/HKD exchange rate is quoted at 7.8000. Stock Code Stock Name Currency Price Market Cap. (B) No. of Shares Beta 0005 0388 0700 1810 2269 2318 2382 3690 9618 9988 HSBC HKEX Tencent Xiaomi WuXi Biologics Ping An Insurance Sunny Optical Meituan JD.com Alibaba HKD HKD HKD HKD HKD HKD HKD HKD HKD HKD 54.10 377.60 421.20 14.66 109.40 60.40 186.70 172.20 279.20 104.20 1,096.00 478.74 4,046.00 366.03 64.25 1,133.00 204.78 1,056.00 871.07 2,240.00 300,000 30,000 30,000 800,000 600,000 500,000 100,000 50,000 50,000 100,000 0.58 0.90 0.49 1.40 1.08 0.93 1.01 1.00 0.69 0.83 AAPL AMZN FB GOOG IBM INTC MSFT MRNA TSLA TWTR Apple Amazon Meta Platforms Alphabet IBM Intel Microsoft Moderna Tesla Twitter USD USD USD USD USD USD USD USD USD USD 165.12 3,071.26 211.03 2,697.82 122.51 47.70 298.79 153.60 870.43 35.55 2,659.00 1,563.00 574.41 1,783.00 194.23 220.94 2.240.00 62.28 899.60 28.46 20,000 1.19 1,000 1.13 10,000 1.29 1,500 1.03 23,000 49,000 13,000 0.89 10,000 1.48 4,000 2.01 50,000 0.75 1.09 0.54 The following prices obtained from the futures markets as of 28 February 2022. The contract specifications and other relevant information can be found in the Hong Kong Exchange and Clearing website, www.hkex.com.hk, and the CME Group website, www.cmegroup.com. Futures Contract Spot Mar-2022 Apr-2022 Jun-2022 Sep-2022 Hang Seng Index Hang Seng TECH Index Hang Seng China Enterprises Index 22,713 5,113 8,024 22,657 5,126 8,031 22,648 5,128 8,036 22,383 5,133 7,941 22,162 5,136 7,856 E-Mini S&P 500 E-Mini Nasdaq-100 E-Mini Dow Jones Industrial 4,373.75 14,237.81 33,892.60 4,370 14,218.00 33,843.00 4,362 14,210.00 33,744.00 4,360 14,200.00 33,435.00 a) Calculate the values of HK portfolio and US portfolio, respectively. (2 marks) b) Calculate the weights of individual stocks. (10 marks) c) Calculate the betas of HK portfolio, US portfolio and the aggregate portfolio, respectively. (3 marks) d) The fund manager would like to reduce the market risk exposure by selling shares. Why is it impracticable to do so? Explain in details what hedging strategy you would recommend the hedge fund. Give reasons for your choice of derivatives contracts. (10 marks)