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Portfolio of Common Stock

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The standard deviation of the rate of return for Jasper products is 6%, while for Headline Industries it is 12%. If the correlation between their returns is 0.74, what is the standard deviation of a portfolio composed of 80% Jasper and 20% Headline common stock?

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Solution Summary

This solution calculates the standard deviation for a portfolio of common stock.

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Please see the attached file.

We will use the following formulas:
? Variance of a stock = (Standard deviation of a stock)^2.
? Covariance of stock 1 and 2 = (Correlation of stock 1 and 2) * (Standard deviation of stock 1) * (Standard deviation of ...

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