Question
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 12% and a standard deviation of 17%.
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 12% and a standard deviation of 17%. B has an expected rate of return of 9% and a standard deviation of 14%.
a. What are the weights of A and B in the global minimum variance portfolio respectively?
Answer: You take standard deviation of A / total standard deviation. Then 1-A = Weight of B.
My question: Please explain how it is possible that one can calculate the portfolio weights using the standard deviation.
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The Oxford Handbook Of Entrepreneurial Finance
Authors: Douglas Cumming
1st Edition
0195391241, 978-0195391244
