Question

- An investor is considering to create a portfolio of two stocks, A (for airline) and E (for energy). Based on data of past two years, each stock is represented by a rate of return mean and standard deviation of the rates of return as follows:

Mean Standard Deviation

Stock A 8% 10%

Stock E 14% 20%

The correlation coefficient between these two stocks is calculated as -0.8. If the investor chooses to split his money on these two stocks as 50% each, what will be the expected mean and standard deviation of his portfolio?

Answer #1

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