Let X and y represent the rates of return (in percent) on two stocks. You are told

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Let X and y represent the rates of return (in percent) on two stocks. You are told that X ~ N(15, 25) and Y ~ N(8,4), and that the correlation coefficient between the two rates of return is - 0.4. Suppose you want to hold the two stocks in your portfolio in equal proportion. What is the probability distribution of the return on the portfolio? Is it better to hold this portfolio or to invest in only one of the two stocks? Why?
Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...
Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
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...
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Essentials of Econometrics

ISBN: 978-0073375847

4th edition

Authors: Damodar Gujarati, Dawn Porter

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