In a two-security portfolio 25% of your money is invested in Security X and the remainder in Security Y.If the standard deviations of Securities X and Y are 22 % and 7 %,respectively,and the portfolio variance is 0.01155625,what is the correlation between the two securities?
A) -0.003275
B) 0.03275
C) 1.0
D) -1.0

Question

Quizplus · Accepted Answer

ρ_XY = [σ²_P-(w²_X)(σ²_X)- (w²_Y)(σ²_Y)]/[2(w_X)(w_Y)(σ_X)(σ_Y)] = (0.01155625 - 0.003025 - 0.00275625)/0.005775 = 1

In a Two-Security Portfolio 25% of Your Money Is Invested