You are allocating money equally among 400 stocks. You believe: i.All stocks have the same levels of
Question:
You are allocating money equally among 400 stocks. You believe:
i. All stocks have the same levels of standard deviation at 40%;
ii. All stocks have the same pair-wise correlation
a. What is the standard deviation of a portfolio of 400 equally weighted stocks if the correlation is 0.0? (1 point)
b. What is the standard deviation of a portfolio of 400 equally weighted stocks if the correlation is 0.8? (1 point)
c. If you observe from the option market that the implied volatility of 35% for individual stock, but 21% for the 400 equally weight portfolio, what is the implied pair-wise correlation between stocks? (2 points)
Statistics Unlocking The Power Of Data
ISBN: 9780470601877
1st Edition
Authors: Robin H. Lock, Patti Frazer Lock, Kari Lock Morgan, Eric F. Lock, Dennis F. Lock