There are just three assets with rate of return r 1 , r 2 , and r
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There are just three assets with rate of return r1, r2, and r3, respectively. The covariance matrix and the expected rates of return are as follows:
| 4 | 3 | 1 | 0.7 | |||||||
| M= | 3 | 2 | 5 | E(r)= | 0.5 | |||||
| 1 | 5 | 1 | 0.3 |
Consider the portfolio of the three assets. Suppose that the weight vector of portfolio A is WA = (0.5, 0.2, 0.3).
(a) Let rA and rB denote the random rate of return of portfolio A and the minimum-variance portfolio B, respectively. Find the covariance between rA and rB __________, and then determine if rA and rB are correlated or not. __________ (Key in 'P' for positively correlated, 'N' for negatively correlated and 'U' for uncorrelated.)
(b) Can we find a portfolio whose rate of return is uncorrelated with that of portfolio A? __________ (key in 'Y' for Yes and 'N' for No.)
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