Question
Find the expected return and standard deviation of a portfolio which holds $2,000 in General Electric and $3,500 in Walmart. There is a correlation of
Find the expected return and standard deviation of a portfolio which holds $2,000 in General Electric and $3,500 in Walmart. There is a correlation of -0.4 between asset General Electric and Walmart. For General Electric the expected return is 2.5% and the standard deviation is 4.1%. For Walmart the expected return is 1.4% and the standard deviation is 1.3%.
[(2000/5500)*0.025]+[(3500/5500)*0.014]
= 0.0091+0.0089
=0.018 or 1.80%
[{(2000/5500)*0.041}2+{(3500/5500)*0.013}2+{2*(2000/5500)*(3500/5500)*0.041*0.013*-0.4}]1/2
= [2.2228 + 0.6844 - 0.9867]1/2
= [1.9205]1/2
= 0.0139 or 1.39%
Calculate the Sharpe Ratio for the individual assets and the portfolios, Risk free rate is 1.2%
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