Exercise

$$ Given a portfolio with only $2$ assets, assets $1$&$2,$ with

a $50/50$ weighting in the portfolio, and with the

following expected return and standard deviation $$ :

$E(R_1)=20\%,{}_1=10\%$

$E(R_2)=20\%,{}_2=10\%$

Calculate the covariances and the standard deviation

of the portfolio under the following different

correlation relationships:

$1.r=1$

$r=-1$

$2.r=0$

$$ How does the correlation affect the standard deviation

of the portfolio?