Question:
Your eccentric Aunt Claudia has left you $50,000 in Alcan shares plus $50,000 cash. Unfortunately her will requires that the Alcan stock not be sold for one year and the $50,000 cash must be entirely invested in one of the stocks shown in Table. What is the safest attainable portfolio under these restrictions?
Fig: Standard deviation of returns and correlation coefficients for a sample if seven stock
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Correlation Coefficients
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Alcan
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BP
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Deutsche
Bank
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KLM
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LVMH
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NestI4
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Sony
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Standard
Deviation
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Alcan
BP
Deutsche Bank KLM
LVMH
Nestle
Sony
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1.0
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.39
1.0
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55
23 1.0
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.54 .29 .36 1.0
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.61
.22
.48
.49
1.0
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.26 .30 .16 .32 .02 1.0
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.36 .14 .39 .19
.50 .10 1.0
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30.2% 23.9 38.1 54.5 42.0 15.5 47.5
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