Portfolio Risk and Return.
[Portfolio] You have the following investment portfolio: $5,000 is invested in the stock of Johnson & Johnson (JNJ), and $10,000 is invested in the stock of Intel Corp. (INTC).
A) Total investment = $5000 + $10000 =$15000
Weight in JNJ = 5000/15000 = 33.33%
Weight in INTC = 10000/15000 = 66.67%
B) Return on Portfolio = (Weight of JNJ x Return on JNJ ) + (Weight of INTC x Retrun on INTC)
Return on Portfolio = (33.33% x 9%)+ (66.67% x 11%)
Return on Portfolio = 10.33%
C) Variance is square of standard deviation.
Standard Deviation of Portfolio =
Standard Deviation of Portfolio = 0.68083
Variance of Portfolio = (0.68083) ^ 2 = 0.4635
Variance of portfolio = 0.4635
W1= Weight in JNJ i.e. 33.33%
W2= Weight in INTC i.e. 66.67%
σ1 = Standard Deviation of JNJ i.e. 0.6324
σ2 = Standard Deviation of INTC i.e. 0.7745
Corr(1,2) = Correlation Coefficient between JNJ and INTC i.e. 0.7
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