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Calculate the extent to which risk is reduced in portfolio

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Reference no: EM133111067

Consider a portfolio with $5,000, invested 60% in Black Gold Inc., an energy company, and 40% in Bits and Bytes, an information technology firm.

Following statistics relate to these two investments:

 

Black Gold

Bits & Bytes

Return

5%

13%

Standard deviation

12%

20%

Correlation coefficient between returns of BG & B&B is 0.7.

Calculate the extent to which risk is reduced in this portfolio.

Reference no: EM133111067

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