Question
Umbrella Inc and Sunscreen Inc. Both companies have 10% return & 45% volatility and are perfectly negatively correlated. The risk of each stock (Sunscreen or
Umbrella Inc and Sunscreen Inc. Both companies have 10% return & 45% volatility and are perfectly negatively correlated.
The risk of each stock (Sunscreen or Umbrella) by ITSELF is the its standard deviation, which is this example is 45%.
What is the measure of each stock's contribution to risk when held together in a portfolio?(Hint: the risk of a portfolio comprising equal proportions of Sunscreen & Umbrella is zero. Yet the risk of each stock by itself is 45%).
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Personal Finance
Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes, Arshad Ahmad, Jordan Fortino
6th Canadian edition
1259453146, 978-1259453144
