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Homework answers / question archive / You are considering buying two stocks: Blue and Red
You are considering buying two stocks: Blue and Red. The following table shows the rates of return for these two stocks and the probabilities of these returns occurring. Scenario Rate of Return of Blue Rate of Return of Red Recession 25% 2.3% 12.4% Normal 55% 5.7% 13.5% Boom 20% 11.4% 19.6% Probability Using these two stocks, you create your portfolio. The expected rate of return of the portfolio you create is 7.681%. Suppose that the standard deviations of returns of Red is 0.02618, and that of Blue is 0.03050. What is the standard deviation of the portfolio?
