Expected return and Standard Deviation of a portfolio
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Suppose the expected returns and standard deviations of stocks A and B are
E(RA)=0.17 E(RB)=0.27 StdDevA=0.12 and StdDevB=0.21 respectively.
Calculate the expected return and standard deviation of a portfolio that is composed of 35 percent A and 65 percent B when the correlation between the returns on A and B is 0.6
Calculate the standard deviation of a portfolio that is composed of 35 percent A and 65 percent B when the correlation coefficient between the returns on A and B is -0.6.
How does the correlation between the returns on A and B affect the standard deviation of the portfolio?
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Solution Summary
The solution calculates the Expected return and Standard Deviation of a portfolio of 2 stocks given the expected returns and standard deviation of returns of the two stock, the coefficient of correlation of returns of the two stocks and the proportion of the two stocks in the portfolio
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