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How much weight should allocate to each asset

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Assume 3 risky assets X, Y, Z where the expected returnexpected returndeterministic/ observed of X is 7%, the of Y is 4% and historical/ returns of Z is 0.02%.

We also know that the variance of X is 20%, the variance of Y is 5% and the correlation of X and Y is -0.2 . The person who holds these assets puts them in a portfolio and decides that X is 70% of the portfolio, Y is 25% of the portfolio and Z is 5% of the portfolio.

Problem 1: If the person wants the standard deviation of the portfolio to remain at 10% then how much weight should they allocate to each asset?

Reference no: EM132967600

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