Portfolio Standard Deviation Suppose the expected returns and standard dev of St
ID: 2619158 • Letter: P
Question
Portfolio Standard Deviation Suppose the expected returns and standard dev of Stocks A and Bare E(RA) .1 1. E(RB) 13, o, .39, and on-.76. a. Calculate the expected return and standard deviation of a portfolio th 28. at is c of 35 percent A and 65 percent B when the correlation between the returns omposd B is .5. b. Calculate the standard deviation of a portfolio with the same portfolio weich as in part (a) when the correlation coefficient between the returns on A and is-.5. c. How does the correlation between the returns on A and B affect the standard deviation of the portfolio?Explanation / Answer
1.
Expected return=35%*0.11+65%*0.13=0.123
Standard deviaiton=sqrt((35%*0.39)^2+(65%*0.76)^2+2*35%*65%*0.39*0.76*0.5)=0.574542644
2.
Standard deviaiton=sqrt((35%*0.39)^2+(65%*0.76)^2-2*35%*65%*0.39*0.76*0.5)=0.441856594
3.
Standard deviation decreases when correlation decreases