Harry Jones has invested one?third of his funds in Share 1 & two?thirds of his funds in Share 2. His assessment of each investment is as follows:
Item Share 1 Share 2
Expected return (%) 15.0 21.0
Standard deviation (%) 18.0 25.0
Correlation between the returns 0.5
(a) What are the expected return & the standard deviation of return on Harry's portfolio?
(b) Recalculate the expected return & the standard deviation where the correlation between the returns is 0 and 1.0, respectively.
(c) Is Harry better or worse off as a result of investing in two securities rather than in one security?