Compare the portfolio distributions

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Suppose you are going to invest equal amounts in three stocks. The annual return from each stock is normally distributed with mean 0.01 (1%) and standard deviation 0.06. The annual return on your portfolio, the output variable of interest, is the average of the three stock returns. Run @RISK, using 1,000 iterations, on each of the following scenarios.
a. The three stock returns are highly correlated. The correlation between each pair is 0.9. What are mean and standard deviation portfolio return? If needed, round your answer to three decimal digits.
Mean Portfolio Return Standard Deviation Portfolio Return
b. The three stock returns are practically independent. The correlation between each pair is 0.1. What are mean and standard deviation portfolio return? If needed, round your answer to three decimal digits.
Mean Portfolio Return Standard Deviation Portfolio Return
c. The first two stocks are moderately correlated. The correlation between their returns is 0.4. The third stock's return is negatively correlated with the other two. The correlation between its return and each of the first two is -0.8. What are mean and standard deviation portfolio return? If needed, round your answer to three decimal digits.
Mean Portfolio Return Standard Deviation Portfolio Return
d. Compare the portfolio distributions from @RISK for these three scenarios. What do you conclude?

Reference no: EM132987540

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