Question
Q3 Ahmed Zahran is building a new portfolio that consists of two stocks, A and B. Stock A will represent 40% of his portfolio while
Q3 Ahmed Zahran is building a new portfolio that consists of two stocks, A and B. Stock A will represent 40% of his portfolio while stock B will represent the remaining 60%. The expected returns for 10 years, 2016 to 2025, are shown in the following table: Expected Return (Stock A) Expected Return (Stock B) Year 2016 2017 14% 25% 23% 20% 18% 17% 16% 14% 2018 16% 2019 17% 2020 2021 17% 19% 2022 21% 14% 2023 22% 12% 2024 22% 10% 2025 24% 8% a . How would you characterize the correlation of returns between the two stocks? b. Discuss any benefits of diversification achieved by Ahmed through the creation of this portfolio.
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