ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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portfolio weights, portfolio return
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portfolio weights, volatility of the securities, correlation coefficient of securities return
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value of investment, total value of portfolio
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None of the above
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Detailed explanation-1: -The correlation coefficient for Stocks ABC and XYZ returns is 0.64014. Using the formula given above we can now calculate the portfolio volatility: Portfolio volatility = Root(89%2×0.141%+11%2×0.578%+2×89%×11%×0.64014×3.76%×7.60%)=3.93%. Note that this is daily portfolio volatility.
Detailed explanation-2: -How Do You Calculate the Correlation Coefficient? The correlation coefficient is calculated by determining the covariance of the variables and dividing that number by the product of those variables’ standard deviations.
Detailed explanation-3: -The standard deviation of the portfolio variance is given by the square root of the variance. In the calculation of the variance for a portfolio that consists of multiple assets, one should calculate the factor (212Cov1, 2) or (212, )for each pair of assets in the portfolio.
Detailed explanation-4: -Find the Standard Deviation of each asset in the portfolio. Find the weight of each asset in the overall portfolio. Find the correlation between the assets in the portfolio (in the above case, between the two assets in the portfolio). More items