Pretend you own stock X and Y. The expected return on stock X, E[rx], equals 15% and the expected return on stock Y, E[ry] equals 25%. Variance-covariance matrix for stocks X and Y: A B A 10.15 0.2 B 10.2 0.6 Consider a portfolio P that is equally invested in both X and Y. ABC 3- 1. What is the expected return on portfolio P? 2. What is the correlation between the stocks X and Y? Based on your calculations, do stocks A and B co-vary in the same direction or opposite direction? 3. Calculate the variance and standard deviation of portfolio P. Show how you obtained your result. | Pretend you own stock X and Y. The expected return on stock X, E[rx], equals 15% and the expected return on stock Y, E[ry] equals 25%. Variance-covariance matrix for stocks X and Y: A B A 10.15 0.2 B 10.2 0.6 Consider a portfolio P that is equally invested in both X and Y. ABC 3- 1. What is the expected return on portfolio P? 2. What is the correlation between the stocks X and Y? Based on your calculations, do stocks A and B co-vary in the same direction or opposite direction? 3. Calculate the variance and standard deviation of portfolio P. Show how you obtained your result. |