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Suppose the expected returns and standard deviations of stock A and B are E (RA) = .13, E (RB) = .19, ?A = .38, and
Suppose the expected returns and standard deviations of stock A and B are E (RA) = .13, E (RB) = .19, ?A = .38, and ?B = .62, respectively. Calculate the expected return and standard deviation of a portfolio that is composed of 45 percent A and 55 percent B when the correlation between the returns on A and B is .5. Calculate the standard deviation of a portfolio that is composed of 40 percent A and 60 percent B when the correlation coefficient between the returns on A and B is -.5. How does the correlation between the returns on A and B affect the standard deviation of the portfolio?
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