The risk reduction through diversification in a portfolio of two stocks: A. (Both statements are correct.)...
The risk reduction through diversification in a portfolio of two stocks:
A. (Both statements are correct.)
B. (Not enough information.)
C. increases as the correlation between the stocks declines.
D. decreases as the correlation between the stocks rises.
Homework Answers
The variance of a portfolio of two stocks is given by:
Portfolio variance = WA2*σA2 + WB2*σB2 + 2*ρ*WA*WB*σA*σB
where ρ is the correlation between the two stocks
We can say that as the correlation between the stocks declines, the variance (risk) of the portfolio will decrease i.e., the risk reduction increases
Also, as the correlation (ρ) between the stocks rises, the variance(risk) of the portfolio will increase or the risk reduction will be lower
Answer -> Both statements are correct (Option A)
Add Answer to:
The risk reduction through diversification in a portfolio of two
stocks:
A. (Both statements are correct.)...
Please answer Which of the following statements about portfolio diversifications are correct? Check all that apply....
Please answer
Which of the following statements about portfolio diversifications are correct? Check all that apply. The higher the stocks' correlation coefficients,the lower the portfolio's risk. Stocks with perfectly negatively correlated returns do not exist. By adding enough partially correlated stocks, risk can be completely eliminated The risk of a portfolio declines as the number of stocks in the portfolio increases.
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is invested in eadh stock C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks D) When combining stocks into a portfolio that puts positive weight on each stock, unless...
If there is no diversification benefit derived from combining two risky stocks into one portfolio, then the O A. return...
If there is no diversification benefit derived from combining two risky stocks into one portfolio, then the O A. returns on the two stocks must move perfectly in sync with one another. O B. returns on the two stocks must move perfectly opposite of one another. OC. stocks must have a zero correlation. O D. portfolio is equally weighted between the two stocks. O E. two stocks are completely unrelated to one another.
If there is no diversification benefit derived...
Using historical data to measure portfolio risk and correlation coefficient Carlos is an investor who believes...
Using historical data to measure portfolio risk and correlation coefficient Carlos is an investor who believes that past variability of stocks isa reasonably good estimate of future risk associated with the stocks. Carlos works on creating a new portfolio and has already purchased stock A. Now he considers tv.'o ether stocks, B and C. Carlos collected data on the historic rates of return for all three stocks, which are presented in the following table. Complete the table by calculating standard...
Which of the following statements about any two stocks is correct? Group of answer choices a....
Which of the following statements about any two stocks is correct? Group of answer choices a. Diversification benefits can be achieved as long as the two stocks have a correlation less than one. b. Diversification benefits can be achieved only when their correlation is less than zero. c. Diversification benefits can be achieved only when their correlation is negative one. d. Diversification benefits can always be achieved between two assets.
1)An investor is considering investing an equally weighed portfolio of two (2) stocks namely X and...
1)An investor is considering investing an equally weighed portfolio of two (2) stocks namely X and Y. You have been given the following information about these two stocks in terms of risk, return and correlation, as shown below: 2)Based on this calculate a) portfolio return b) portfolio risk c.)Compare portfolio risk with the individual stock risks and identify the benefit of the diversification of the portfolio. Stock X Y E(R) 10% 8% σ 20% 15% Correlation between A and B...
Which of the following statements is (are) false regarding the risk of a portfolio of two...
Which of the following statements is (are) false regarding the risk of a portfolio of two risky securities A & B? A. The co-variance of A&B equals the volatility A plus volatility B plus the correlation between A&B B. If the correlation between A & B is -1, a risk free portfolio comprising A &B can be constructed that would have an expected return equal to the risk free rate C. The risk of a portfolio comprising A & B...
When combining stocks in a portfolio, the greatest reduction in overall risk of the portfolio will...
When combining stocks in a portfolio, the greatest reduction in overall risk of the portfolio will occur when: (choose only one answer) Group of answer choices A - the two stocks are negatively correlated. B - the two stocks are positively correlated. C - the two stocks are uncorrelated.
Maximum diversification benefit can be achieved if one were to form a portfolio of two stocks...
Maximum diversification benefit can be achieved if one were to form a portfolio of two stocks whose returns had a correlation coefficient of: A. -1.0 B. +1.0 C. 0.0 D. none of the above
You are considering investing in two stocks to form a portfolio. You are very risk averse...
You are considering investing in two stocks to form a portfolio. You are very risk averse (you do not like risk). Which one of the following stock combinations will you choose for your portfolio (these are your only options)? Stocks A & B which have a correlation coefficient of +1.0. Stocks C & D which have correlation coefficient of -0.6. Stocks G & H which both have a beta of 2.0. Stocks E & F which have a correlation coefficient...
Please answer
Which of the following statements about portfolio diversifications are correct? Check all that apply. The higher the stocks' correlation coefficients,the lower the portfolio's risk. Stocks with perfectly negatively correlated returns do not exist. By adding enough partially correlated stocks, risk can be completely eliminated The risk of a portfolio declines as the number of stocks in the portfolio increases.
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is invested in eadh stock C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks D) When combining stocks into a portfolio that puts positive weight on each stock, unless...
If there is no diversification benefit derived from combining two risky stocks into one portfolio, then the O A. returns on the two stocks must move perfectly in sync with one another. O B. returns on the two stocks must move perfectly opposite of one another. OC. stocks must have a zero correlation. O D. portfolio is equally weighted between the two stocks. O E. two stocks are completely unrelated to one another.
If there is no diversification benefit derived...
Using historical data to measure portfolio risk and correlation coefficient Carlos is an investor who believes that past variability of stocks isa reasonably good estimate of future risk associated with the stocks. Carlos works on creating a new portfolio and has already purchased stock A. Now he considers tv.'o ether stocks, B and C. Carlos collected data on the historic rates of return for all three stocks, which are presented in the following table. Complete the table by calculating standard...
Which of the following statements is (are) false regarding the risk of a portfolio of two risky securities A & B? A. The co-variance of A&B equals the volatility A plus volatility B plus the correlation between A&B B. If the correlation between A & B is -1, a risk free portfolio comprising A &B can be constructed that would have an expected return equal to the risk free rate C. The risk of a portfolio comprising A & B...
Most questions answered within 3 hours.
-
Calculate the number density of argon gas at a temperature of
24C and a pressure of...
asked 2 hours ago -
Alternative
Classification
How to Estimate
Probabilities from Data? ( For continuous Attributes)
And How to generate...
asked 2 hours ago -
An explosion breaks a 20.0-kg object into three parts. The
object is initially moving at a...
asked 3 hours ago -
Calculate the approximate number of residues of Rubisco, which
is involved in carbon fixation in plants,...
asked 4 hours ago -
Other decisions about scientific claims can have a much broader
impact.ENERGYarrow-10x10.png, environment, health, security - all...
asked 4 hours ago -
I need to write a research paper and work cited about this
topic: The United States...
asked 5 hours ago -
Hello! I was wondering if I could have some help?
If the vapor pressure of carvone...
asked 5 hours ago -
An economist wants to estimate the mean per capita income (in
thousands of dollars) for a...
asked 5 hours ago -
What would be the input/output characteristic of a circuit
obtained by putting two of your 2's-complementers...
asked 5 hours ago -
In Drosophila, the transition from the syncytial blastoderm
stage to the cellular blastoderm stage is a...
asked 6 hours ago -
Project management question:
Name 3 different types of resources (hint: humans are one
type)
asked 6 hours ago -
Consider the following reaction: C 2H 2( g) + 2H 2( g) C 2H 6(
g)...
asked 6 hours ago