Question

You are creating a portfolio of two stocks. The first one has a standard deviation of 28% and the second one has a standard deviation of 40%. The correlation coefficient between the returns of the two is 0.3. You will invest 50% of the portfolio in the first stock and the rest in the second stock. What will be the standard deviation of this portfolio's returns? Answer in percent, rounded to two decimal places (e.g., 4.32%=4.32).

Answer #1

standard deviation for a two-asset portfolio σ_{p} =
(w_{1}^{2}σ_{1}^{2} +
w_{2}^{2}σ_{2}^{2} +
2w_{1}w_{2}Cov_{1,2})^{1/2}

where σ_{p} = standard deviation of the portfolio

w_{1} = weight of Asset 1

w_{2} = weight of Asset 2

σ_{1} = standard deviation of Asset 1

σ_{2} = standard deviation of Asset 2

Cov_{1,2} = covariance of returns between Asset 1 and
Asset 2

Cov_{1,2} = ρ_{1,2} * σ_{1} *
σ_{2,} where ρ_{1,2} = correlation of returns
between Asset 1 and Asset 2

standard deviation = ((0.50^{2} * 0.28^{2}) +
(0.50^{2} * 0.40^{2}) + (2 * 0.50 * 0.50 * 0.3 *
0.28 * 0.40))^{1/2}

standard deviation of portfolio = 27.64%

You are creating a portfolio of two stocks. The first one has a
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deviation of 34%. The correlation coefficient between the returns
of the two is 0.2. You will invest 38% of the portfolio in the
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standard deviation of this portfolio's returns? Answer in percent,
rounded to two decimal places (e.g., 4.32%=4.32).

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Multiple Choice
0.727
0.436
0.291
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You have a portfolio with a standard deviation of 25 % and an
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have 20 % of your money in the new stock and 80 % of your money in
your existing portfolio, which one should you add?
Expected Return
Standard Deviation
Correlation w/ Portfolio's returns
Stock A
14%
22%
0.3
Stock B
14%
16%...

What is the standard deviation of a portfolio of two stocks
given the following data: Stock A has a standard deviation of 18%.
Stock B has a standard deviation of 14%. The portfolio contains 40%
of stock A, and the correlation coefficient between the two stocks
is -.23.
9.7%
12.2%
14%
15.6%

What is the standard deviation of a portfolio of two stocks
given the following data: Stock A has a standard deviation of 18%.
Stock B has a standard deviation of 14%. The portfolio contains 40%
of stock A, and the correlation coefficient between the two stocks
is -.23.
Multiple Choice
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C. 14%
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Provide your answer in percent rounded to two decimals,
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and an expected return of
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You are considering adding one of the two stocks in the
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75 %75%
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Standard
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Correlation with
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Stock A
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