Tonalli is putting together a portfolio of 10 stocks in equal proportions. What is the relative...
Tonalli is putting together a portfolio of 10 stocks in equal proportions. What is the relative importance of the variance for each stock versus the covariance for the pairs of stocks in her portfolio? For this exercise, ignore the actual values of the variance and covariance terms and explain their importance conceptually.
Homework Answers
If the stocks have equal standard deviation then relative importance of variance=standard deviation/covariance so relative importance is same
If the stocks have unequal standard deviation then Relative importance of variance=(standard deviation of stock 1^2+standard deviation of stock 2^2)/(2*covariance between stock 1 and stock 2)
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Tonalli is putting together a portfolio of 10 stocks in equal
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