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Portfolio Variance

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Year Stock A Stock B
1998 .3 .1
1999 .0 .0
2000 .5 .1
2001 .2 .3
2002 .3 .3
2003 -.2 -.1
2004 .5 .0
2005 .1 .2
2006 -.1 .2
2007 .4 .3
E(R) .20 .14
Sigma .232 .136

a. Prepare a plot showing in the portfolio variance for various combinations of Stocks A and B
b. Find the minimum variance portfolio
c. Find the proportions of Stocks A and B that constitute a portfolio with the same risk as Stock B alone.

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Solution Summary

The expert prepares a plot showing in the portfolio variance for various combinations of Stocks A and B and finds the minimum variance portfolio.

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