Question
You have a portfolio with a standard deviation of 22% and an expected return of 20%. You are considering adding one of the two stocks
You have a portfolio with a standard deviation of 22% and an expected return of 20%. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 20% of your money in the new stock and 80% of your money in your existing portfolio, which one should you add?
Expected Return | Standard Deviation | Correlation with Your Portfolio's Returns | |
Stock A | 13% | 26% | 0.4 |
Stock B | 13% | 20% | 0.7 |
a) What is the Standard deviation of the portfolio with stock A. (Round to two decimal places.)
b) What is the Standard deviation of the portfolio with stock B. (Round to two decimal places.)
c) Which standard portfolio should we add?
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