Author Question: An investor is considering investing one-half of his wealth in Asset A and one-half in Asset B. He ... (Read 44 times)

vicky · **on:** Apr 25, 2021

An investor is considering investing one-half of his wealth in Asset A and one-half in Asset B. He is not sure how the two assets are correlated. The correlation might be r = +1 or it might be r = -1. If it is r = + 1, then the portfolio standard deviation is 15%. Calculate the portfolio standard deviation if the correlation is r = -1. What is the difference between the standard deviations of Scenario 1 and Scenario 2? (Scenario 1 - Scenario 2)

	ASSET A	ASSET A	ASSET B	ASSET B	Correlation
Scenario	Expected Return	Standard Deviation	Expected Return	Standard Deviation	Correlation of A and B
1	10%	20%	5%	10%	+1
2	10%	20%	5%	10%	-1

◦ 2.5%
◦ 5.0%
◦ 7.5%
◦ 10.0%
◦ 15.0%

wilsonbho · **Reply #1 on:** Apr 25, 2021

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