Suppose you own a two-security portfolio.You have 35 percent of your money invested in Security X and the remainder in Security Y.The standard deviations of Securities X and Y are 10 percent and 15 percent,respectively.What is the correlation between the two securities if the portfolio variance is 0.013225?
A) 0.0055
B) 0.0137
C) 0.3654
D) 0.9148

Question

Quizplus · Accepted Answer

ρ_XY = [σ²_P-(w²_X)(σ²_X)- (w²_Y)(σ²_Y)]/[2(w_X)(w_Y)(σ_X)(σ_Y)] = (0.013225-0.001225-0.00950625)/0.006825 = 0.3654

Suppose You Own a Two-Security Portfolio