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Sharpe ratio of the actively managed portfolio

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Assume that you are the fund manager of an actively managed mutual fund with a broadly diversified portfolio. You are looking for over/undervalued stocks in the market, and your fund can use long and short positions. Which of the following stocks would you prefer? A. A stock with an alpha of plus 3% and idiosyncratic risk of 20%. B. A stock with an alpha of plus 3% and idiosyncratic risk of 10%. C. A stock with an alpha of minus 4% and idiosyncratic risk of 10%. D. A stock with an alpha of minus 4% and idiosyncratic risk of 20%. E. None of these stocks would improve the Sharpe ratio of the actively managed portfolio.

Reference no: EM133110770

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