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 ago

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