Consider the 15:10an information E St. Dev Wet ht A 5% 20% 23 B 15% 40% U3 Calculate the wasted returns and standard deviation for thefoitowing: m=LQ m=0.5,m= 0.0,m=-0.5andm =-.i.l5' What do you notice and what does this teit as about the importance of correlation beMeen assets? SOLUTION 13 P rtf l' Sta d rd Correlation EIH) Portfolio Variance o D It: _ n a Dewatlon 1 0.003 0.0?1 0.26? 0.5 0.003 0.053 0.231 0 0.003 0.035 0.139 -0.5 0.083 0.013 0.133 -1 0.003 0.000 0030 Egg) = 3.3%. As correlation reduces, std devreduees to 0 at correlation = -1