Suppose Johnson & Johnson and Walgreen Boots Alliance have expected returns and volatilities shown here,, with a correlation of 20%. Assume the portfolio is equally invested in these two stocks. If the correlation between Johnson & Johnson's and Walgreens' stock were to increase, a. Would the expected return of the portfolio rise or fall? b. Would the volatility of the portfolio rise or fall?

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.