Question
Suppose John wishes to construct his portfolio with Stock X and Y , but he is not decided on the weights. Jane wishes to construct
Suppose John wishes to construct his portfolio with Stock X and Y, but he is not decided on the weights. Jane wishes to construct her portfolio with Stock Y and Z, also undecided on the weights.
|
| Stock X | Stock Y | Stock Z |
| Expected Return | 0.06 | 0.18 | 0.12 |
| Standard Deviation | 0.10 | 0.30 | 0.20 |
| Covariance between X and Y | -0.027 |
| |
| Covariance between Y and Z |
| 0.054 | |
- Compute the correlation coefficients for John's and Jane's portfolios.
- Which person has a greater chance to achieve greater risk diversification? Why?
- What other factor(s) may affect the degree of risk diversification?
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
15th edition
77861612, 1259194078, 978-0077861612, 978-1259194078
