## Comment on Live Example -1

Given that X and Y are stock prices – shouldnt the beta neutrality be applied on nominal exposure so if tata motor (Y) – Tata Motor DVR (X) has a BETA of 1.59 shouldnt it mean that exposure on tata motor should be equal to 1.59 times the exposure on Tata Motor DVR? ——-> This is correct.

so if nominal value of one lot of tata motor is (1500*331.65) Rs 497,475 the exposure i need to take in DVR is 1.59*497,475 = 790,985 which translates into 4064 shares of DVR @ 194.65. please clarify? ————-> Beta adjustment should happen on the stock price, not the contract value. Remember, price is already factored in when computing the Beta.

In computing the Z score shouldnt we see how far is the current datapoint from mean rather than absolute value. so Z score should be (current value of residual – mean of last 200 onservations)/ standard deviation of 200 observations of residual. Please clarify? —————> This is how Z score is calcualted. Not sure if I’m missing the point here.