You are considering investing in two securities, X and Y. The following data are available for the

Question:

You are considering investing in two securities, X and Y. The following data are available for the two securities:

a. If you invest 40 percent of your funds in Security X and 60 percent in Security Y and if the correlation of returns between X and Y is +0.5 compute the following:
i. The expected return from the portfolio
ii. The standard deviation of returns from the portfolio
b. What happens to the expected return and standard deviation of returns of the portfolio in Part a if 70 percent of your funds are invested in Security X and 30 percent of your funds are invested in Security Y?
c. What happens to the expected return and standard deviation of returns of the portfolio in Part a if the following conditions exist?
i. The correlation of returns between Securities X and Y is +1.0.
ii. The correlation of returns between Securities X and Y is 0.
iii. The correlation of returns between Securities X and Y is €“0.7.

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...