Identifying the Efficient Portfolio
Consider the Omega Fund and real estate fund of Example 11.13. Suppose you have $100 million invested in the Omega Fund. In addition to this position, how much should you invest in the real estate fund to form an efficient portfolio of these two funds?
Example 11.13
You are currently invested in the Omega Fund, a broad-based fund with an expected return of 15% and a volatility of 20%, as well as in risk-free Treasuries paying 3%. Your broker suggests that you add a real estate fund to your portfolio. The real estate fund has an expected return of 9%, a volatility of 35%, and a correlation of 0.10 with the Omega Fund. Will adding the real estate fund improve your portfolio?