You are now considering the possibility of adding KFD stock to your portfolio, which currently consists of equal weights of Mellon Corporation and Insignia Enterprises.
The expected returns and standard deviation of expected returns for Mellon and Insignia are:
Mellon Corporation Insignia Enterprises
Expected return 23.14% 18.93%
Standard deviation 26.56% 20.77%
The correlation coefficients among the three corporations are:
Mellon Corporation Insignia Enterprises KFD Corporation
Mellon Corporation 1.0000
Insignia Enterprises 0.5385 1.0000
KFD Corporation 0.4233 0.3982 1.0000
1. Calculate the expected return, variance, and standard deviation of a portfolio consisting of 30% Mellon Corporation, 60% Insignia Enterprises, and 10% KFD Corporation.
2. The correlation coefficient between KFD Corporation and the market is 0.2532, while the variance of the market is 0.04. Determine the beta for KFD Corporation.