Chapter 10: Return and Risk: The Capital-Asset-Pricing ...

= (0.40)2(0.10)2 + (0.60)2(0.20)2 + (2)(0.40)(0.60)(0.10)(0.20)(-0.5) = 0.0112 P = (0.0112)1/2 = 0.1058 =10.58%. If the correlation between the returns on Stock A and Stock B is -0.5, the standard deviation of the portfolio is 10.58%. As Stock A and Stock B become more negatively correlated, the standard deviation of the portfolio decreases. 10 ... ................
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