Sensitive 4.25 The values of Ms Sweetheart Company and Mr Sugar Company are se to the price of cocoa. If the cocoa crop fails due to bad weather, Ms Su heart suffers from huge losses while Mr Sugar generates more profit. Tha following shows the three scenarios of Mr Sugar (refer to Exercise 4.24 for Ms Sweetheart); Crop failure Rate of return Probability Bearish market Bullish market 13% 40% 50% 8% 20% 10% (a) Calculate the correlation between the returns of Ms Sweetheart and Mr Sugar. (b) Kitty wants to construct a portfolio with the lowest possible variance using the two stocks. Find the weight of Ms Sweetheart in the portfolio and compute the expected return of this minimum-variance portfolio. Sensitive 4.25 The values of Ms Sweetheart Company and Mr Sugar Company are se to the price of cocoa. If the cocoa crop fails due to bad weather, Ms Su heart suffers from huge losses while Mr Sugar generates more profit. Tha following shows the three scenarios of Mr Sugar (refer to Exercise 4.24 for Ms Sweetheart); Crop failure Rate of return Probability Bearish market Bullish market 13% 40% 50% 8% 20% 10% (a) Calculate the correlation between the returns of Ms Sweetheart and Mr Sugar. (b) Kitty wants to construct a portfolio with the lowest possible variance using the two stocks. Find the weight of Ms Sweetheart in the portfolio and compute the expected return of this minimum-variance portfolio