Stock A has an expected return of 8% and a standard deviation of 40%.Stock B has an expected return of 13% and standard deviation of 60%.The correlation between A and B is -1 (i.e.,they are perfectly negatively correlated).Show that you can form a zero risk portfolio by investing $w _ { A } = \frac { \sigma _ { B } } { \sigma _ { A } + \sigma _ { B } }$ in A and the rest in B.

Question

Quizplus · Accepted Answer

The Answer of Stock A has an expected return of 8% and a standard deviation of 40%.Stock B has an expected return of 13% and standard deviation of 60%.The correlation between A and B is -1 (i.e.,they are perfectly negatively correlated).Show that you can form a zero risk portfolio by investing $w _ { A } = \frac { \sigma _ { B } } { \sigma _ { A } + \sigma _ { B } }$ in A and the rest in B.

Stock a Has an Expected Return of 8% and a Standard