Stocks A and B are perfectly negatively correlated ( $$\text { Q1,2 }$$ = -1)and their standard deviations are 0.20 and 0.30 respectively. What is the standard deviation of a portfolio with 50% invested in Stock A and 50% invested in Stock B?
A)5%
B)6%
C)7%
D)8%
E)9%

Question

Quizplus · Accepted Answer

When two stocks are perfectly negatively correlated, the portfolio standard deviation is calculated as the absolute difference of the weighted standard deviations: 0.5*0.20 - 0.5*0.30 = 0.05 or 5%.

Stocks a and B Are Perfectly Negatively Correlated Q1,2 \text { Q1,2 } Q1,2

Stocks a and B Are Perfectly Negatively Correlated $\text { Q1,2 }$