Your eccentric Aunt Claudia has left you $50,000 in Canadian Pacific shares plus $50,000 cash. Unfortunately her will requires that the Canadian Pacific stock not be sold for one year and the $50,000 cash must be entirely invested in one of the stocks shown in Table 7.9. What is the safest attainable portfolio under these restrictions?
TABLE7.9 Standard deviations of returns and correlation coefficients for a sample of eight stocks.
Correlation Coefficients | |||||||||
| BP | Canadian Pacific | Deutsche Bank | Fiat | Heineken | LVMH | Nestlé; | Tata Motors | Standard Deviation |
BP | 1 | 0.19 | 0.23 | 0.20 | 0.34 | 0.30 | 0.16 | 0.09 | 22.2% |
Canadian Pacific |
| 1 | 0.43 | 0.31 | 0.39 | 0.34 | 0.17 | 0.40 | 23.9 |
Deutsche Bank |
|
| 1 | 0.74 | 0.73 | 0.73 | 0.49 | 0.68 | 29.2 |
Fiat |
|
|
| 1 | 0.66 | 0.64 | 0.47 | 0.53 | 35.7 |
Heineken |
|
|
|
| 1 | 0.64 | 0.51 | 0.50 | 18.9 |
LVMH |
|
|
|
|
| 1 | 0.52 | 0.60 | 20.8 |
Nestlé |
|
|
|
|
|
| 1 | 0.43 | 15.4 |
Tata Motors |
|
|
|
|
|
|
| 1 | 43.0 |
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