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Given the following information:
What is the expected return and standard deviation of the portfolio if 50% of funds invested in each stock? What would be the impact if the correlation coefficient were 0.6 instead of 0.2?
Suggested Answer: C
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36 comments · newest first
ST
Stevie
11 months ago
The expected return seems reasonable, but those deviations are tricky!
ME
Melissia
11 months ago
I disagree, I feel like the correlation change would really affect the outcome.
CH
Cheryl
11 months ago
Surprised by how low the standard deviation can go!
VI
Virgina
12 months ago
I think option D might be too optimistic.
DO
Dominga
12 months ago
Looks like option B is the most balanced choice.
AL
Alaine
12 months ago
I’m leaning towards option B, but I can't shake the feeling that I might have mixed up the correlation effects.
OL
Oliva
1 year ago
I think the expected return should be around 16%, but I’m not confident about the standard deviation. The correlation change might really affect it.
JO
Josefa
1 year ago
This question feels familiar; I think we did a similar one where we had to adjust for correlation. I hope I remember the right steps!
VA
Valentin
1 year ago
I remember we practiced calculating expected returns, but I'm unsure about the exact formulas for standard deviation in a portfolio.
JO
Josue
1 year ago
I'm feeling pretty confident about this one. The key is to apply the right portfolio theory equations and pay attention to the correlation coefficient change.
NU
Nu
1 year ago
Okay, I think I've got this. I'll plug the numbers into the portfolio optimization formulas and see which answer choice matches my calculations.
KA
Kati
1 year ago
Hmm, I'm a bit confused by the correlation coefficient part. How does that impact the portfolio metrics? I'll need to review that concept.
MA
Maryann
1 year ago
This looks like a standard portfolio optimization problem. I'll need to calculate the expected return and standard deviation based on the given information.
SH
Sherly
2 years ago
Forget the numbers, I'm just here for the portfolio memes. 'How to turn your investment into a complete nightmare in 3 easy steps.'
HA
Hana
2 years ago
User 3
WI
Willodean
2 years ago
User 2
MA
Margurite
2 years ago
User 1
KA
Kayleigh
2 years ago
Wait, did they just ask us to calculate the impact of correlation on a portfolio? Sounds like someone's been watching too many finance documentaries on Netflix.
EL
Elenora
2 years ago
But what about the impact of the correlation coefficient? Would it really make a big difference?
AN
Annmarie
2 years ago
I agree with Adrianna, option B seems to be the most reasonable choice.
AI
Aileen
2 years ago
High risk, high reward! 19% return and 0.429 standard deviation? Sign me up, I'm feeling lucky today!
GE
Gerald
2 years ago
It's all about finding the right balance between risk and reward.
SA
Salley
2 years ago
I prefer a more conservative approach, maybe option C would be better for me.
RI
Ricarda
2 years ago
I think I'll go with option D, 19% return sounds tempting.
IZ
Izetta
2 years ago
That's a bold move, high risk indeed!
AD
Adrianna
2 years ago
I think the expected return would be 16% with option B.
EV
Evangelina
2 years ago
Ah, the sweet spot! 16% return and 0.314 standard deviation. Now that's what I call a well-balanced portfolio.
NA
Nadine
2 years ago
Azzie: I wonder how the numbers would change if the correlation coefficient was 0.6 instead of 0.2.
AZ
Azzie
2 years ago
User 2: Definitely, it's the sweet spot for a well-balanced portfolio.
RE
Ressie
2 years ago
User 1: I agree, a 16% return and 0.314 standard deviation is ideal.
MI
Michael
2 years ago
I'm more of a conservative investor, so I'd go with option B - 16% return and 0.398 standard deviation. Seems like a safer bet.
MI
Micheline
2 years ago
Hmm, let's see... 18% return and 0.456 standard deviation? Sounds like a pretty risky investment to me.
GL
Glenn
2 years ago
That would definitely impact the risk and return of the portfolio.
GA
Gail
2 years ago
But what if the correlation coefficient was 0.6 instead of 0.2?
SK
Skye
2 years ago
I think option D looks more appealing with a 19% return.
LA
Latricia
2 years ago
I agree, that does seem like a high standard deviation.