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Consider an equally weighted portfolio of five stocks, each of which is independently distributed of the others, i.e., corr (ri, rj) = 0, for i
Consider an equally weighted portfolio of five stocks, each of which is independently distributed of the others, i.e., corr (ri, rj) = 0, for i j. Assume also that each stock has the same total risk, that is j = 0.5 for all js. a. What is the variance and standard deviation of this portfolio? b. What fraction of each asset's risk is diversified away by including it in this portfolio?
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