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If we have two stocks in the portfolio and want to minimize the standard deviation of this portfolio subject to mu (expected returns). We have
If we have two stocks in the portfolio and want to minimize the standard deviation of this portfolio subject to mu (expected returns). We have the formula for the weights of these stocks in the portfolio (weights depend on the expected return of the portfolio and mean values of stock returns). But investors incur trading costs whenever they alter their portfolio. A change of 5% or more in the portfolio allocations would be considered to incur significant costs. Explain how you would advise the investor to reduce costs.
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