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Statistics for three stocks A, B & C are shown in the following tables: Stock A Stock B Stock C...

Question:

Statistics for three stocks A, B & C are shown in the following tables:

Stock A Stock B Stock C
Standard Deviation 40% 20% 40%

Correlations of Returns:

Stock A B C
A 1.00 0.91 0.53
B 1.00 0.12
C 1.00

Only on the basis of the information provided in the tables and given the choice between a portfolio made up of equal amounts of stocks A and B or a portfolio made up of equal amounts of stocks B and C, which portfolio would you recommend?

Standard Deviation of a Stock's Returns:

The standard deviation of a stock returns is the variation of the stock return from the mean, it represents how far from the mean the stocks return was in the past. Because it represents the deviation of the stock's return and the deviation could be on the downward side, it is often perceived as a risk.

Answer and Explanation:

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Given information:

  • Standard deviation of stock A = {eq}\displaystyle \sigma_A {/eq}= 40%
  • Standard deviation of stock B =...

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Portfolio Weight, Return & Variance: Definition & Examples

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Chapter 12 / Lesson 1
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A portfolio can be designed in several different ways. It is important to understand the basics of a portfolio before building and managing one. In this lesson, we will go over the weight, return, and variance of a portfolio.


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