Question
4.You invest 40% of your money in Stock Y and the rest in Stock Z. The standard deviation of Stock Y's annual returns is 54%
4.You invest 40% of your money in Stock Y and the rest in Stock Z. The standard deviation of Stock Y's annual returns is 54% and the standard deviation of Stock Z's annual returns is 47%. The standard deviation of the portfolio's annual returns is 42%. By how many percentage points did diversification reduce your risk in this case? Write your answer out to three decimals - for example, write 6.2% as .062.
5.You invest 37% of your money in Stock A and the rest in Stock B. The standard deviation of annual returns is 52% for Stock A and 58% for Stock B. The correlation between the two stocks is 0.8. What is the standard deviation of annual returns for the combination of the two stocks? Go out three decimal places - for example, write 39.6% as .396.
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