John currently has a portfolio of shares giving a return of 20% with a risk of 10%. He is considering a new investment which gives a return of 20% with a risk of 12%. The coefficient of correlation of the new investment with his existing portfolio is + 0.2. The new investment will comprise 40% of his enlarged portfolio. Should he invest in the new investment?

Answer rating: 100% (QA)

To determine whether John should invest in the new investment we need to compare the expected return and risk of the enlarged portfolio with and witho... View the full answer