Question

Determining the weights when short-selling: Is this correct?

I'm wondering if I did this correctly, thus I would love to get an answer. Something tells me that it can't be this simple

Based on your calculation in 5, you decide to short sell $20,000 worth of the overpriced stock and use all of the proceeds of the short sale to buy the underpriced stock. Your portfolio currently consists of $100,000 worth of the market portfolio, which you bought with your own money. Given this information, calculate the weight of KO, TAP, and the market portfolio for your new portfolio, portfolio P. WM = 100% WTAP = -20% WKO = 20% 100000 -20000 20000 Fortjono = 100000 100000 100000 100000 =1 = 100% WM = 100000 -20000 100000 = -0.2 = -20% 20000 WKO 100000 = 0.2 = 20%

Answer 1

This is correct assuming TAP is overpriced stock and KO is underpriced stock.
If the overpricing/underpricing identification is correct then it is this simple only.