Assume the following statistic for Stock A and Stock B:
Stock A = Expected Return = .15 Standard Deviation = .186 Weight = 60%
Stock B = Expected Return = .21 Standard Deviation = .280 Weight = 40%
Correlation Coeeficiant - +1; -1: +0.2
1. Calculate the expected return of the two-security portfolio?
2. Calculate the variance (and standard deviation) of the two-security portfolio based on each of the three (3) correlation coefficiants?
3. Discuss how adjusting the correlation coefficiant impacts the variance of the portfolio.