Question
In: Finance
stock a's return has a variance of 0.0016. Stock b's return hasa variance of 0.0036....
stock a's return has a variance of 0.0016. Stock b's return has a variance of 0.0036. The correlation between the two stock returns is -1 (i.e., a and b are perfectly negatively correlated). What is the standard deviation of a portfolio investing 50% and 50% in a and b?
Solutions
Expert Solution
- Stock A's Variance 
= 0.0016
Stock A's Standard Deviation 
= 0.04
Weight of portfolio in Stock A(WA) =0.50
- Stock B's Variance 
= 0.0036
Stock B's Standard Deviation 
= 0.06
Weight of portfolio in Stock B(WB) =0.50
Correlation Between two stocks 
= -1
Calculating Standard Deviation of Portfolio:-
Standard deviation of Portfolio = 0.01
jeff jeffy answered 2 years agoRelated Solutions
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