Question
question 2 Investments X and Y have the following information: Economic Scenario Probability Returns: X Returns: Y Worst outcome 20% 5% 7% Most likely outcome
question 2
Investments X and Y have the following information:
Economic Scenario | Probability | Returns: X | Returns: Y |
Worst outcome | 20% | 5% | 7% |
Most likely outcome | 60% | 15% | 14% |
Best outcome | 20% | 25% | 21% |
Assume that investment X makes up 40% of the value of the portfolio and investment Y is 60%
A. Calculate the portfolios risk for a perfectly positive correlation coefficient.
B. Calculate the portfolios risk for a perfectly negative correlation coefficient.
C. Use your calculations in parts (A) and (B) to explain why correlation is important to take into account when constructing a portfolio
NB. Please show all the workings so that i can follow how you have calculated
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