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Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio Consider the following case Alex is an amateur investor who holds
Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio Consider the following case Alex is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: Stock Artemis Inc. Babish & Co Cornell Industries Danforth Motors Percentage of Portfolio 20% 3096 35% 15% Expected Return 6.00% 14.00% 13.00% 5.00% Standard Deviation 23.00% 27.00% 30.00% 32.00% What is the expected return of Alex's stock portfolio? 14.445% 10.70% 8.025% 16.05% Suppose each stock in the preceding portfolio has a correlation coefficient of 0.4 ( = 0.4) with each of the other stocks. If the weighted average of the risk (standard deviation) of the individual securities in the partially diversified portfolio of four stocks is 28%, the portfolio's standard deviation ( op) most likely is 28%
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