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Suppose Johnson & Johnson and Walgreens Boots Alliance have expected returns and volatilities shown below, with...

  1. Suppose Johnson & Johnson and Walgreens Boots Alliance have expected returns and volatilities shown below, with a correlation of 21%.

    Expected Return

    Standard Deviation

    Johnson & Johnson

    6.90%

    17.90%

    Walgreens Boots Alliance

    9.60%

    21.60%






  1. Calculate the expected return and the volatility of a portfolio that is equally invested in both stocks.
  2. For the portfolio in (a), if the correlation between two stocks were to increase, would the expected return of the portfolio rise or fall? Would the volatility of the portfolio rise or fall?
  3. Calculate the expected return and the volatility of a portfolio that consists of a long position of $8500 in Johnson & Johnson and a short position of $1500 in Walgreens’.
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