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Exercise 4 : Expected Return Standard Deviation Assuming the presence of two stocks, A and B , with their characteristics defined as follows: E (
Exercise :
Expected Return
Standard Deviation
Assuming the presence of two stocks, A and with their characteristics defined as follows: and
Additionally, various correlation coefficients are considered, including:
Perfectly and positively correlated assets
Perfectly and negatively correlated assets
Independent assets
Correlation coefficient of
Correlation coefficient of
For each type of correlation, the assignment involves, explain:
How did we construct the efficient frontier corresponding to each correlation coefficient.
Identify the figure that matches each correlation coefficient.
Explore the concept of diversification and identify the conditions under which it is most effective.
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