a) The expected return is:
Means for A and B are:
x(A) = (-0.1 + 0 + 0.4)/3 = 0.1,
x(A) = (-0.05 + 0.05 + 0.5)/3 = 0.167,
Standard deviation of A and B is:
b) Assuming that you have £20,000 to invest. You have decided to invest £10,000 in stock A and the remainder in stock B. Calculate and comment upon the expected return and standard deviation of your portfolio if the correlation between A and B is 0.5.
c) A fully diversified portfolio includes any risk too.