Question

You are given the following three stocks and you have been asked to propose a portfolio...

You are given the following three stocks and you have been asked to propose a portfolio for a wealthy client. The client wants either a 2 asset (A-B, B-C, or A-C) or a 3 asset(A-B-C) portfolio. In any case, the portfolios must be equal weighted. Which of the four portfolios do you suggest to the client? Why?

Show your work step by step.

Stocks

Mean Return

Std of Return

X

1.5

4

Y

4

8

Z

7

1

Correlations

X and Y

X and Z

Z and Y

0.5

0.2

0.7
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Answer #1

To manage the efficent portfolio, we have to lower the portfolio std deviation

we will start with X and Y

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