What is the return and risk of that portfolio

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1. Review the example from the lecture about Umbrella Inc and Sunscreen Inc. Both companies have 10% return & 45% volatility and are perfectly negatively correlated. Assume you sell 25% of Umbrella Inc and buy Sunscreen Inc. such that you hold 75% Umbrella and 25% Sunscreen. What is the return and risk of that portfolio?

2. Review the example from the lecture about Umbrella Inc and Sunscreen Inc. Both companies have 10% return & 45% volatility and are perfectly negatively correlated. Assume you sell 50% of Umbrella and buy Sunscreen such that you now hold 50% of each stock. What is the return and risk of that portfolio?

3. Review the example from the lecture about Umbrella Inc and Sunscreen Inc. Both companies have 10% return & 45% volatility and are perfectly negatively correlated.

The risk of each stock (Sunscreen or Umbrella) by ITSELF is the standard deviation, which in this example is 45%.

What is the measure of each stock's contribution to risk when held together in a portfolio? (Hint: the risk of a portfolio comprising equal proportions of Sunscreen & Umbrella is zero. Yet the risk of each stock by itself is 45%).

Reference no: EM132652732

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