Stock X and Stock Z both have an expected return of 10%.The standard deviation of the expected
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Question:
Stock X and Stock Z both have an expected return of 10%.The standard deviation of the expected return is 8% for Stock X, and 12% for Stock Z.Assume that these are the only two stocks available in a hypothetical world.
Assume that the correlation between the returns of the two stocks is +0.1.
What is the expected return and standard deviation of a portfolio containing 50% X and 50% Z?
What is the optimal amount of Stock Z for an investor to hold in a portfolio (if the correlation is +0.1)?
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