Question
In: Finance
The standard deviation of stock A is .60, while the standard deviation of stock B is...
The standard deviation of stock A is .60, while the standard deviation of stock B is .80. If the correlation coefficient for A and B is positive, then a portfolio that consists of 50% of stock A and 50% of stock B MUST have a standard deviation _________. Assume no short selling allowed.
a) Less than 0.5
b) Greater than 0.7
c) Greater than 0.5
d) Less than 0.6
e) Not enough information
Solutions
Expert Solution
e. Not enough information. Correlation amount is not given and also no mean is given. Cov xy means Covariance can't be calculated because of this. The formula for calculating Portfolio standard deviations is;
Here W stands for weight which
is given in the problem and sigma indivates standard deviation. Cov
for Covariance. In the question it is mentioned that there is a
positive correlation. No amount is given a positive correlation may
be above 0 upto 1. If it is mentioned that perfect correlation is
there we could assume it as 1. Bu only positive correlation is
mentioned. Upto 0.5 lower positive correlation. 0.5- +1 will ne
highly positive correlation.
jeff jeffy answered 2 years agoRelated Solutions
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