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Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard...


Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed.

Stock Expected Return Standard Deviation
A 20% 25%
B 15% 19%


Refer to Exhibit 8.14. What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B?

a. 42%
b. 58%
c. 65%
d. 72%
e. 35%
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Answer #1

Hence the correct option is a.42%

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