You are shown the following data. If the correlation coefficient between the combined portfolio of A+B...

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Finance

You are shown the following data. If the correlationcoefficient between the combined portfolio of A+B and C is 0.2,what would happen to the overall volatility of the new portfolio ifwe invested 50% in A+B and the remaining 50% in C? You couldpotentially avoid computations.
Stocks
Volatility
%
Portfolio invested
Average Return
A and B
27
50
15
C
32
50
18
Volatility will lie somewhere between 32% and 40%.
Volatility will lie somewhere between 27% and 32%.
Volatility will be below 27%.
Volatility will be above 40%.
Volatility will become zero.

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4.1 Ratings (878 Votes)

Volatilitywill lie somewhere between 32 and 40 If wecombine a portfolio of high volatility with that of low volatilitythen the volatility of the portfolio is bound to come down so thevolatility of higher than 32 doesnt make sense so See Answer

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Transcribed Image Text

You are shown the following data. If the correlationcoefficient between the combined portfolio of A+B and C is 0.2,what would happen to the overall volatility of the new portfolio ifwe invested 50% in A+B and the remaining 50% in C? You couldpotentially avoid computations.StocksVolatility%Portfolio investedAverage ReturnA and B275015C325018Volatility will lie somewhere between 32% and 40%.Volatility will lie somewhere between 27% and 32%.Volatility will be below 27%.Volatility will be above 40%.Volatility will become zero.