Problem
You wish to combine two stocks, Encor and Maestro, into a portfolio with an expected return of 15.8 percent. The expected return of Encor is 1.8 percent with a standard deviation of 1 percent. The expected return of Maestro is 24.6 percent with a standard deviation of 9.8 percent. The correlation between the two stocks is 0.4.
• What is the composition (weights) of the portfolio?
• What is the portfolio standard deviation?