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Investment Essay

1103 words - 5 pages

PORTFOLIO WITH CORRELATION COEFFICIENT (-1) |
DESCRIPTION | | INVESTED WEIGHT | MEAN | VARIANCE | STANDARD DEVIATION |
Coefficient (-1) | | Wa | Wb | | | Wa | Wb |
Mean return (%) | | 10 | 18 | | | | |
Variance (%) | | 15 | 5 | | | | |
Standard deviation (%) | | | | | | 3.87 | 2.24 |
Composition | 1 | 1.00 | 0.00 | 10 | 15.00 | 3.87 | 2.24 |
| 2 | 0.75 | 0.25 | 12 | 5.50 | 3.87 | 2.24 |
| 3 | 0.50 | 0.50 | 14 | 0.67 | 3.87 | 2.24 |
| 4 | 0.25 | 0.75 | 16 | 0.50 | 3.87 | 2.24 |
| 5 | 0.00 | 1.00 | 18 | 5.00 | 3.87 | 2.24 |

Workings:

1. (1.0,0), (0.75,0.25), (0.50,0.50), (0.25,0.75), (0, 1.0)

2. Mean return E ® = Wa(10) + (1-Wa)(18):

...view middle of the document...

24 |
| 2 | 0.75 | 0.25 | 12 | 7.12 | 3.87 | 2.24 |
| 3 | 0.50 | 0.50 | 14 | 2.83 | 3.87 | 2.24 |
| 4 | 0.25 | 0.75 | 16 | 2.12 | 3.87 | 2.24 |
| 5 | 0.00 | 1.00 | 18 | 5.00 | 3.87 | 2.24 |

Workings:

1. (1.0,0), (0.75,0.25), (0.50,0.50), (0.25,0.75), (0, 1.0)

2. Mean return E ® = Wa(10) + (1-Wa)(18):

(1.00, 0.00) = (1.00)(10) + (1-1.00)(18) = 10
(0.75, 0.25) = (0.75)(10) + (1-0.75)(18) = 12
(0.50, 0.50) = (0.50)(10) + (1-0.50)(18) = 14
(0.25, 0.75) = (0.25)(10) + (1-0.25)(18) = 16
(0.00, 1.00) = (0.00)(10) + (1-0.00)(18) = 18

3. Variance σ2 = (Wa)2(15) + (Wb)2(5) + (2 x Wa x Wb) (-0.50) (√ σa2) (√ σb2):

(1.00, 0.00) = (1.00)2(15) + (0.00)2(5) + (2 x 1.00 x 0.00) (-0.5) (3.87) (2.24) = 15.00
(0.75, 0.25) = (0.75)2(15) + (0.25)2(5) + (2 x 0.75 x 0.25) (-0.5) (3.87) (2.24) = 7.12
(0.50, 0.50) = (0.50)2(15) + (0.50)2(5) + (2 x 0.50 x 0.50) (-0.5) (3.87) (2.24) = 2.83
(0.25, 0.75) = (0.25)2(15) + (0.75)2(5) + (2 x 0.25 x 0.75) (-0.5) (3.87) (2.24) = 2.12
(0.00, 1.00) = (0.00)2(15) + (1.00)2(5) + (2 x 0.00 x 1.00) (-0.5) (3.87) (2.24) = 5.00

4. MVEF (0.25, 0.75) = 2.12

PORTFOLIO WITH CORRELATION COEFFICIENT (0) |
DESCRIPTION | | INVESTED WEIGHT | MEAN | VARIANCE | STANDARD DEVIATION |
Coefficient (0) | | Wa | Wb | | | Wa | Wb |
Mean return (%) | | 10 | 18 | | | | |
Variance (%) | | 15 | 5 | | | | |
Standard deviation (%) | | | | | | 3.87 | 2.24 |
Composition | 1 | 1.00 | 0.00 | 10 | 15.00 | 3.87 | 2.24 |
| 2 | 0.75 | 0.25 | 12 | 8.75 | 3.87 |...

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