Calculating Standard Deviation Based on Correlation Coefficients
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Question
Your eccentric aunt has left you $50,000 in Alcan shares plus $100,000 cash. Unfortunately, her will requires that the Alcan stock not be sold for one year and that $60,000 cash must entirely be invested in T-bills with $40,000 in any one of the other three stocks shown in the Table below. What is the standard deviation of returns for the safest attainable portfolio under this restriction?
Correlation Coefficients
|
|
Alcan |
BP |
Deutsche Bank |
KLM |
Standard Deviation |
|
Alcan |
1.00 |
.39 |
.55 |
.44 |
30% |
|
BP |
|
1.00 |
.23 |
.29 |
40% |
|
DB |
|
|
1.00 |
.36 |
25% |
|
KLM |
|
|
|
1.00 |
35% |
Summary
This question belongs to finance and discusses about calculating standard deviation of returns for the safest attainable portfolio for given data.
Word count: NA
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