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Determine the correlation coefficient

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ABC and XYZ companies have the following expected risk and return data for next year: expected return (ABC) = 14%; expected return (XYZ) = 18%; standard deviation (ABC) = 20%; standard deviation (XYZ) = 25%; correlation between the stock returns of ABC and XYZ is 0.5. The risk of an equally weighted portfolio with these two stocks is 22%. Determine the correlation coefficient that will be necessary to reduce the level of the equally weighted portfolio risk by 20%. (You must show all necessary workings, a single numerical value will not be accepted)

Reference no: EM132999302

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