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You have $600,000 to invest in the stock market. Suppose you invested one-third of your wealth in stock Q and the rest in stock L.
You have $600,000 to invest in the stock market. Suppose you invested one-third of your wealth in stock Q and the rest in stock L. These stocks have the following characteristics: Stock Q has an expected return of 10% and a standard deviation of 7%. Stock L has an expected return of 18% and a standard deviation of 11%.
Determine the expected return and standard deviation on a portfolio of stocks Q and L, when the two stocks are uncorrelated and when they are negatively perfectly correlated.
Interpret and compare your answers in these two cases.
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