You have invested 40% of your money in action A and the rest in action B. Your expectations are the following:

A B

Expected return 1 0% 15%

Typical deviation 15% 25%

The correlation coefficient between A and B is equal to 0.5.

1. What are the expected return and the typical deviation of your portfolio returns?
2. How would you change your answer if the correlation coefficient were 0 (zero) or -0.5?
3. This portfolio is better or worse than another in which everything would have been invested in Stock A, or is it not possible to say?

Answer rating: 100% (QA)

1 Expected return Weight in Action A Expected return of action A Wei... View the full answer