Investor can make investments in 5 types of stocks. According to the available data (relating to the
Question:
Investor can make investments in 5 types of stocks. According to the available data (relating to the past), estimates of the mean values (mathematical expectations) and standard deviations of annual returns were made, which are given in Table 1 (In the table, percentages are given in the form of decimals). The correlation between the annual return of stocks is shown in Table 2. Investor needs to compile a portfolio of these stocks, which would have a minimum variance expected rate of return at least 0,14.
Table 1. Mean values (mathematical expectations) and standard deviations
Mean | Standard deviation | |
stock 1 | 0,14 | 0,23 |
stock 2 | 0,15 | 0,21 |
stock 3 | 0,11 | 0,18 |
stock 4 | 0,09 | 0,22 |
stock 5 | 0,18 | 0,31 |
Table 2. Correlations of annual returns
Combination | Correlation |
stock 1 and stock 2 | 0,15 |
stock 1 and stock 3 | 0,17 |
stock 1 and stock 4 | 0,04 |
stock 1 and stock 5 | 0,11 |
stock 2 and stock 3 | 0,23 |
stock 2 and stock 4 | 0,20 |
stock 2 and stock 5 | 0,22 |
stock 3 and stock 4 | 0,26 |
stock 3 and stock 5 | 0,28 |
stock 4 and stock 5 | 0,18 |