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You are allocating your wealth between two shares, GoldenClaw and Syldavian Industries. GoldenClaw has volatility 51.20%, while Syldavian Insustries has volatility 14.70%. The correlation beteween the two shares' returns is -0.03. What percentage of your wealth should you allocate to GoldenClaw to minimise your portfolio's volatility? O 77.50% O 8.55% O 15.01% O 8.28%

You are allocating your wealth between two shares, GoldenClaw and Syldavian Industries. GoldenClaw has volatility 51.20%, while Syldavian Insustries has volatility 14.70%. The correlation beteween the two shares' returns is -0.03. What percentage of your wealth should you allocate to GoldenClaw to minimise your portfolio's volatility? O 77.50% O 8.55% O 15.01% O 8.28%

Essentials Of Investments
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
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You are allocating your wealth between two shares, Golden Claw and Syldavian Industries. Golden Claw has volatility 51.20%, while Syldavian Insustries has volatility 14.70%. The correlation beteween the two shares' returns is -0.03. What percentage of your wealth should you allocate to Golden Claw to minimise your portfolio's volatility? 77.50% 8.55% 15.01% 8.28%
Transcribed Image Text:You are allocating your wealth between two shares, Golden Claw and Syldavian Industries. Golden Claw has volatility 51.20%, while Syldavian Insustries has volatility 14.70%. The correlation beteween the two shares' returns is -0.03. What percentage of your wealth should you allocate to Golden Claw to minimise your portfolio's volatility? 77.50% 8.55% 15.01% 8.28%
Expert Solution
Step 1

Weight of GoldenClaw to minimize portfolio's volatility is calculated using following equation

Weight of assets A = σ2B-CovA,BσA2+σB2-2×CovA,B

Where, σA and σB are volatility of stock A and B respectively

CovA,B is covariance between A and B

CovA,B = ρA,B×σA×σB

Where, ρA,B is correlation between A and B

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