Look back at the calculation for Heinz and Exxon in Section 8-1. Recalculate the expected portfolio return and standard deviation for different values of x1 and x2, assuming the correlation coefficient ρ12 = 0. Plot the range of possible combinations of expected return and standard deviation as in Figure 8.3. Repeat the problem for ρ12 = +.25.

Figure 8.3

12 10- Exxon Mobil 40% in Exxon Mobil Heinz 10 15 20 25 Standard deviation (), %