*. An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24%, while the standard deviation on stock B is 14%. The correlation coefficient between the returns on A and B is .35. The expected return on stock A is 25%, while on stock B it is 11%. The proportion of the minimum-variance portfolio that would be invested in stock B is approximately
*. An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24%, while the standard deviation on stock B is 14%. The correlation coefficient between the returns on A and B is .35. The expected return on stock A is 25%, while on stock B it is 11%. The proportion of the minimum-variance portfolio that would be invested in stock B is approximately
Related questions
- Consider two stocks, A and B.
|
|
Expected return (%) |
Standard deviation (%) |
|
Stock A |
24 |
28 |
|
Stock B |
19 |
23 |
The returns on the two stocks have a positive correlation of 0.6. You are required to calculate the portfolio return and risk.
Suppose that the investor wants to reduce the portfolio risk to 15%. How much should the correlation coefficient be to bring the portfolio risk to the desired level?