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Consider two risky assets with the following attributes: E[R] Stock 1 80% 50% Stock 2 20% 30% Suppose the two stocks have correlation = 0.6
Consider two risky assets with the following attributes:
| E[R] | ||
| Stock 1 | 80% | 50% |
| Stock 2 | 20% | 30% |
Suppose the two stocks have correlation = 0.6
Table for various portfolios of the two stocks:
| y | 1 - y | E[R] | st dev |
| -0.2 | 1.2 | 8.00% | 31.05% |
| -0.1 | 1.1 | 14.00% | 30.27% |
| 0 | 1 | 20.00% | 30.00% |
| 0.1 | 0.9 | 26.00% | 30.27% |
| 0.2 | 0.8 | 32.00% | 31.05% |
| 0.3 | 0.7 | 38.00% | 32.31% |
| 0.4 | 0.6 | 44.00% | 34.00% |
| 0.5 | 0.5 | 50.00% | 36.06% |
| 0.6 | 0.4 | 56.00% | 38.42% |
| 0.7 | 0.3 | 62.00% | 41.04% |
| 0.8 | 0.2 | 68.00% | 43.86% |
| 0.9 | 0.1 | 74.00% | 46.86% |
| 1 | 0 | 80.00% | 50.00% |
| 1.1 | -0.1 | 86.00% | 53.25% |
| 1.2 | -0.2 | 92.00% | 56.60% |
- If you target an expected return of 35%, what is the lowest standard deviation you can achieve?
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