The expected return and standard deviation of a portfolio that is 50 percent inv

Question

The expected return and standard deviation of a portfolio that is 50 percent invested in 3 Doors, Inc., and 50 percent invested in Down Co.

                                          3 Doors, Inc.      Down Co.
Expected return, E (R)              19%                 11%
Standard deviation, s                 52                    36


What is the standard deviation if the correlation is +1? 0? -1? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Correlation +1:      %
Correlation 0:        %
Correlation -1:       %

Explanation / Answer

p2 = wA2A2+wB2B2+2wAwBABAB

For correlation = 1

p2 = 0.520.522+0.520.362+2*0.5*0.5*0.52*0.36*1 = 0.1936

p=0.44 or 44%


For correlation = 0

p2 = 0.520.522+0.520.362+2*0.5*0.5*0.52*0.36*0 = 0.1

p=0.3162 or 31.62%


For correlation = -1

p2 = 0.520.522+0.520.362+2*0.5*0.5*0.52*0.36*(-1) = 0.0064

p= 0.08 or 8%

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