You have a portfolio with a standard deviation of 30 % and an expected return of...

You have a portfolio with a standard deviation of 30 % and an expected return of 18 %. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 30 % of your money in the new stock and 70 % of your money in your existing portfolio, which one should you add?

	Expected Return	Standard Deviation	Correlation with Your Portfolio's Returns
Stock A	15%	23%	0.3
Stock B	15%	17%	0.6

Standard deviation of the portfolio with stock A is __%? (Round to two decimal places)

Standard deviation of the portfolio with stock B is __%? (Round to two decimal places)

Which stock would you add to your portfolio?

Solutions

Expert Solution

As Adding both the stocks will give same Expected return, we should base our decision upon the standard deviation.

Standard Deviation of Stock A is 16.62% which is lesser as compared to the stock B having 17.21%, hence we will choose Stock A to be added in the portfolio

jeff jeffy answered 7 months ago

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