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You wish to combine two stocks, Encor and Maestro, into a portfolio with an expected return...

You wish to combine two stocks, Encor and Maestro, into a portfolio with an expected return of 15.9 percent. The expected return of Encor is 1.9 percent with a standard deviation of 1 percent. The expected return of Maestro is 24.8 percent with a standard deviation of 9.9 percent. The correlation between the two stocks is 0.4.

What is the composition (weights) of the portfolio?


What is the portfolio standard deviation?

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Answer #1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A B C D Expected Retunr Standard deviation Correlation Encor 1.90% 1.00% 0.4 Maestro 24.80% 9.90% Expected return of Portfoli

Cell reference -

B Encor Maestro Expected Retur Standard deviation Correlation 0.019 0.01 0.4 0.248 0.099 Expected return of Portfolio 0.159 P

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

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