A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 24%, while stock B has a standard deviation of return of 18%. Stock A comprises 60% of the portfolio, while stock B comprises 40% of the portfolio. If the variance of return on the portfolio is .0380, the correlation coefficient between the returns on A and B is ________.
A) .583
B) .225
C) .327
D) .128

Question

Quizplus · Accepted Answer

.0380 = (.6²)(.24²) + (.4²)(.18²) + 2(.6)(.4)(.24)(.18) ρ; ρ = .583

A Portfolio Is Composed of Two Stocks, a and B