An analysis of the stock market produces the following information about the returns of two stocks: Assume that the returns are positively correlated, with ₁₂ = 0.80.
a. Find the mean and standard deviation of the return on a portfolio consisting of an equal investment in each of the two stocks.
b. Suppose that you wish to invest $1 million. Discuss whether you should invest your money in stock 1, stock 2, or a portfolio composed of an equal amount of investments on both stocks.

Question

An analysis of the stock market produces the following information about the returns of two stocks:

Assume that the returns are positively correlated, with

₁₂ = 0.80.
a. Find the mean and standard deviation of the return on a portfolio consisting of an equal investment in each of the two stocks.
b. Suppose that you wish to invest $1 million. Discuss whether you should invest your money in stock 1, stock 2, or a portfolio composed of an equal amount of investments on both stocks.

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The Answer of An analysis of the stock market produces the following information about the returns of two stocks: Assume that the returns are positively correlated, with ₁₂ = 0.80. a. Find the mean and standard deviation of the return on a portfolio consisting of an equal investment in each of the two stocks. b. Suppose that you wish to invest $1 million. Discuss whether you should invest your money in stock 1, stock 2, or a portfolio composed of an equal amount of investments on both stocks.

An Analysis of the Stock Market Produces the Following Information