Two assets\' correlation is -0.2. The first has expected return of 9% and standa

Question

Two assets' correlation is -0.2. The first has expected return of 9% and standard deviation of 16%, the second has expected return of 13% and standard deviation of 20%.

Calculate the minimum amount of risk (standard deviation) you'll need to take if investing in these two assets...

You are creating a portfolio of two stocks.Both stocks have E(r)=8% and standard deviation of 30%. The two stocks' correlation is -0.6.Calculate the percentage increase in the Sharpe ratio of a portfolio containing each stock in 50%-50% ratio compared to the Sharpe ratio of investing in only one of the stocks! The risk free rate is 2%. (Provide your answer in percent rounded to two decimals, omitting the % sign.)

Explanation / Answer

The Std. Dev. of the portfolio would be 11.2% when the weight of Stock 1 is 60% and stock 2 is 40%.

This is the minimum Std. Deviation obtained by starting with 100% portfolio of stock 1 and then incrementally decreasing the weight of Stock by 10%

at 50-50 Expected return = 8% R(f) = 2%. Std. Deviation = 13.42%

Sharpe Ratio = 0.45

Sharpe ratio in case of investing in only one Stock = 0.2

Hence, Percentage increase = 0.45/0.2-1 = 123.55

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