Suppose each stock in Andres portfolio has a correlation coefficient of 0.40 (rho = 0.40) with each
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Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.40 (rho = 0.40) with each of the other stocks. The market’s average standard deviation is approximately 20%, and the weighted average of the risk of the individual securities in the partially diversified four-stock portfolio is 39%. If 40 additional, randomly selected stocks with a correlation coefficient of 0.30 with the other stocks in the portfolio were added to the portfolio, what effect would this have on the portfolio’s standard deviation?
Related Book For
Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary
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