XYZ Investment Corporation is considering a portfolio with 70% weighting in a cyclical stock and 30%...

XYZ Investment Corporation is considering a portfolio with 70% weighting in a cyclical stock and 30% weighting in a countercyclical stock. It is expected that there will be three economic states; Good, Average and Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of 25%, 5% and 1% in Good, Average and Bad economies respectively. The countercyclical stock is expected to have returns of -8%, 2% and 14% in Good, Average and Bad economies respectively. Given this information, calculate portfolio variance.

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jeff jeffy answered 2 years ago

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XYZ Investment Corporation is considering a portfolio with 70% weighing in a cyclical stock and 30%...

XYZ Investment Corporation is considering a portfolio with 70% weighing in a cyclical stock and 30% weighing in a countercyclical stock. It is expected that there will be three economic states; Good, Average, and Bad, each with equal probabilities of occurrence. The cyclical stock is expected to have returns of 25%, 5%, and 1% in Good, Average, and Bad economics respectively. The countercyclical stock is expected to have returns of -8%, 2%, and 14% in Good, Average, and Bad economies respectively....

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