Asked by carlene powers on Jul 07, 2024
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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
Portfolio Variance
A measure of the dispersion of the returns of a portfolio, indicating the level of risk involved.
Correlation Coefficient
A numerical indicator that shows the extent of association between two variables' movements.
Standard Deviation
A statistical measure that quantifies the dispersion or spread of a set of data points or investment returns around their mean.
- Master the calculation and understanding of standard deviations, covariances, and correlation coefficients in the context of investment returns.
- Conceptualize the importance of correlation coefficients in portfolio diversification and risk management.
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Learning Objectives
- Master the calculation and understanding of standard deviations, covariances, and correlation coefficients in the context of investment returns.
- Conceptualize the importance of correlation coefficients in portfolio diversification and risk management.
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