Using the following 3 securities calculate Expected return v

Using the following 3 securities calculate: Expected return variance Standard deviation Correlation between all possible pairs Covariance between all possible pairs Using the following percentages, calculate the portfolio variance and expected return for each portfolio.

Solution

Probability Stock A Stock B Stock C 0.4 15% 35% 1% 0.3 10% 30% 9% 0.15 5% 25% 14% 0.15 -3% 24% 20% Expected Returns 9.368% 30.350% 8.200% Correlation A B C A 0.00438 0.00267 -0.00452 B 0.00267 0.00193 -0.00298 C -0.00452 -0.00298 0.00485 Portfolio Calculations Portfolio weights A B C Returns Variance 1 50% 50% 0% 19.859% 0.0029136 2 40% 0% 60% 8.667% 0.0002795 3 45% 30% 25% 15.370% 0.0006233