A portfolio is equally split between 10 different stocks, each of which has a beta of 1 and the same correlation with the market portfolio. The idiosyncratic component of returns is uncorrelated across stocks. The annualized volatility of the market is 15%, and of the portfolio is 17%. (a) What is the volatility of each stock? (b) What is the correlation between each stock and the market? (c) What is the correlation between one stock and another?
A portfolio is equally split between 10 different stocks, each of which has a beta of 1 and the same correlation with the market portfolio. The idiosyncratic component of returns is uncorrelated across stocks. The annualized volatility of the market is 15%, and of the portfolio is 17%. (a) What is the volatility of each stock? (b) What is the correlation between each stock and the market? (c) What is the correlation between one stock and another?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A portfolio is equally split between 10 different stocks, each of which has a beta of 1 and the same correlation with the market portfolio. The idiosyncratic component of returns is uncorrelated across stocks. The annualized volatility of the market is 15%, and of the portfolio is 17%.
(a) What is the volatility of each stock?
(b) What is the correlation between each stock and the market?
(c) What is the correlation between one stock and another?
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