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24 Jul 2018
Suppose that the standard deviation of returns from a typical share is about 0.55 (or 55%) a year. The correlation between the returns of each pair of shares is about 0.4. a. Calculate the variance and standard deviation of the returns on a portfolio that has equal investments in 2 shares, 3 shares, and so on, up to 10 shares. b. How large is the underlying market variance that cannot be diversified away? c. Assume that the correlation between each pair of stocks is zero. Calculate the variance and standard deviation of the returns on a portfolio that has equal investments in 2 shares, 3 shares, and so on, up to 10 shares.
Suppose that the standard deviation of returns from a typical share is about 0.55 (or 55%) a year. The correlation between the returns of each pair of shares is about 0.4. a. Calculate the variance and standard deviation of the returns on a portfolio that has equal investments in 2 shares, 3 shares, and so on, up to 10 shares. b. How large is the underlying market variance that cannot be diversified away? c. Assume that the correlation between each pair of stocks is zero. Calculate the variance and standard deviation of the returns on a portfolio that has equal investments in 2 shares, 3 shares, and so on, up to 10 shares.
Nelly StrackeLv2
26 Jul 2018
