Plan on investing in risk-free asset in your portfolio

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Reference no: EM131905415

You've been holding this stock for a while and you realize it's very risky to hold a single stock. You plan to diversify your portfolio by adding 3 more stocks you are interested in. The big issue now is how to allocate your fund into these 4 stocks. You find expected returns and annualized volatilities for the other 3 stocks using the same method as before. You find the correlations among these 4 stocks using the past 1-year historical daily returns (The function to find correlation is CORREL). You set up a reasonable target portfolio return and use the theory of portfolio optimization to find out the weights of 4 stocks in your portfolio. In addition, you don't plan on investing in risk-free asset in your portfolio and you don't intend to short any stocks.

Reference no: EM131905415

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