Problem:
Suppose the expected returns and standard deviations of stocks A and B are E(RA) = 0.17, E(RB) = 0.27, StdDevA = 0.12, and StdDevB = 0.21, respectively.
Q1. Calculate the expected return and standard deviation of a portfolio that is composed of 35% A and 65% B when the correlation between the returns on A and B is 0.6.
Q2. Calculate the standard deviation of a portfolio that is composed of 35% A and 65% B when the correlation coefficient between the returns on A and B is -0.6.
Q3. How does the correlation between the returns on A and B affect the standard deviation of the portfolio?