You have two stocks to invest. Stock A has a beta of 1.4 and B has a
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Question:
You have two stocks to invest. Stock A has a beta of 1.4 and B has a beta of 0.6. Stock A's standard deviation is 20% and stock B's standard deviation is 30%. The correlation between them is 0.8.
a)Which stock has higher systematic risk?
b)Which stock has higher unsystematic risk?
c)If we construct a portfolio with equal weight in Stock A and B, what will be the standard deviation of the portfolio?
d)Is it lower than the individual stock standard deviations? If so why?
e)What is the portfolio beta?
f)In general, what is the difference between systematic and unsystematic risk? Can you create a portfolio without risk? without systematic risk? or without unsystematic risk?
Related Book For
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
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