8 (Correlation and Diversification)Assume we have two stocks, A and B, show that a particular combinationof the two stocks produce a risk-free portfolio when the correlation betweenthe return of A and B is -1.

Define VariablesLet:wA and wB be the weights of stocks A and B in the portfolio.σAand σB be the…

Answered: 8 (Correlation and Diversification)…

Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018

18th Edition

ISBN:9780079039897

Author:Carter

Publisher:Carter

Chapter4: Equations Of Linear Functions

Section4.5: Correlation And Causation

Problem 2AGP

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Example2
Christina obtained the following results for about 500 families: Average weight of husband = 170 lbs, SD=10 lbs Average weight of wife=140 lbs, SD=5 lbs • Correlation r=0.4 The scatterplot of the dataset shows the relationship between husbands and wives weights is linear. Of the women who were married to men of weight 200 lbs, their estimated average weight will be (A) 200 (B) 200+0.4* (140-170) (C) 140+ 0.4*10 (200-140) (D) 140+0405 (200-170)

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8 (Correlation and Diversification) Assume we have two stocks, A and B, show that a particular combination of the two stocks produce a risk-free portfolio when the correlation between the return of A and B is -1.