Delilah Jones has a portfolio of stocks A and B.See the table below for details.What is the correlation between the two stocks?

A) -1.0
B) -0.5
C) 0
D) 0.5
E) 1.0

Question

Delilah Jones has a portfolio of stocks A and B.See the table below for details.What is the correlation between the two stocks?

A) -1.0 
B) -0.5 
C) 0 
D) 0.5 
E) 1.0

Quizplus · Accepted Answer

From the text we know the equation for the standard deviation of a 2 asset portfolio is: σ_p = 11ea7fdb_fc06_2dc9_a768_5b9aedfe8946_TB2902_11 11ea7fdb_fc06_54da_a768_5b1ab74e315f_TB2902_11 = 0.4²0.2² + 0.6²0.22² + 2(0.4)(0.6)(0.2)(0.22) 11ea7fdb_fc06_54db_a768_c33a68b78d99_TB2902_11 0.013264 = 0.0064 + 0.0174 + 0.02112 11ea7fdb_fc06_54dc_a768_c534e4ea14a4_TB2902_11 -0.010536 = 0.02112 11ea7fdb_fc06_54dd_a768_0d01653b509b_TB2902_11 11ea7fdb_fc06_54de_a768_cd9d0487b0a2_TB2902_11 = -0.4989 or -0.50

Delilah Jones Has a Portfolio of Stocks a and B