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Assume you have invested $55,000 in the stock of ABC Industries and $20,000 in the stock of Southern Enterprises. Their prospective returns are listed below:
Assume you have invested $55,000 in the stock of ABC Industries and $20,000 in the stock of Southern Enterprises. Their prospective returns are listed below:
| State of the Economy | Probability | ABC Industries | Southern Enterprises |
| Expansion | 25% | 30% | 25% |
| Normal | 50% | 21% | 15% |
| Recession | 25% | 2% | -4% |
- Determine the expected return for ABC Industries and Southern Enterprises.
- Determine the expected return of the portfolio.
- Determine the standard deviation of the portfolio.
- In general, what is the correlation of the two stocks (i.e, positive or negative)? What is their general correlation with the state of the economy?
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