hard · Principles of Finance risk-return-portfolio
Two risky assets have expected returns μ_1=8%, μ_2=8%, standard deviations σ_1=10%, σ_2=20%, and correlation ρ=-1. A long-only investor seeks the minimum-variance combination.
What weight in asset 1, and what portfolio standard deviation, results?
- w_1=tfrac23, giving a portfolio standard deviation of exactly 0%
- w_1=tfrac12, giving a portfolio standard deviation of 5%
- w_1=tfrac13, giving a portfolio standard deviation of 0%
- w_1=tfrac45, giving a positive minimum standard deviation of 2%
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