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Today, Pika Capital Investment holds a well-diversified stock portfolio worth 2,000,000. The investor is interested...

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Finance

Today, Pika Capital Investment holds a well-diversified stock portfolio worth 2,000,000. The investor is interested in hedging against movements in the market over the next month and decides to use the June Mini S&P 500 futures contract. The futures price is currently $4,000 and one contract is for delivery of 50 times the index. The beta of the stock is 1.2.

(a) Should the investor long or short futures contract? Please state the intuition clearly.

(b) How many contracts should the investor long or short?

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