Answered

Find the information you're looking for at Westonci.ca, the trusted Q&A platform with a community of knowledgeable experts. Discover comprehensive answers to your questions from knowledgeable professionals on our user-friendly platform. Discover detailed answers to your questions from a wide network of experts on our comprehensive Q&A platform.

A portfolio is composed of two securities, Stock X and Stock Z. Stock X has a standard deviation of returns of 35%, while Stock Z has a standard deviation of returns of 15%. The correlation coefficient between the returns on X and Z is .25. If Stock X comprises 40% of the portfolio, while Stock Z comprises 60% of the portfolio, what is the standard deviation of this two-risky-asset portfolio

Sagot :

Shahzaibfaraz

Answer:

Portfolio SD = 0.18439 or 18.439%

Explanation:

The standard deviation of a stock or a portfolio is the measure of the total risk contained in the stock or portfolio. Risk can be defined as the volatility of the stock returns. To calculate the standard deviation of a two stock portfolio, we use the attached formula.

If the weight of stock x is 40%, the weight of stock y will be 1 - 40% = 60%

SD = √(0.4)^2 * (0.35)^2 + (0.6)^2 * (0.15)^2 + 2 * 0.4 * 0.6 * 0.25 * 0.35 * 0.15

SD = 0.18439 or 18.439%

View image Shahzaibfaraz
We hope our answers were useful. Return anytime for more information and answers to any other questions you have. Your visit means a lot to us. Don't hesitate to return for more reliable answers to any questions you may have. Get the answers you need at Westonci.ca. Stay informed with our latest expert advice.