Consider two perfectly negatively correlated risky securities, K and L.K has an expected rate of return of 13% and a standard deviation of 19%.L has an expected rate of return of 10% and a standard deviation of 16%. The weights of K and L in the global minimum variance portfolio are _____ and _____, respectively.

Question

Quizplus · Accepted Answer

In a two-asset portfolio with perfectly negatively correlated assets, the weights are determined by the formula: weight of K = (σ²L) / (σ²K + σ²L) and weight of L = (σ²K) / (σ²K + σ²L). Calculating these gives weights of approximately 0.46 for K and 0.54 for L.

Consider Two Perfectly Negatively Correlated Risky Securities, K and L