Illustration

Stocks Return -Rx Risk - σ Compute Return and Risk for different portfolios
A 18.00% 23.00% •How much should be invested in A to construct
B 15.00% 19.00% variance portfolio?

Correlation Coefficient 0

Portfolio Investment in A B A(W) B(W)

1 50% 50.0% 0.50 0.50
2 50% 50.0% 0.50 0.50
3 70% 30.0% 0.70 0.30

Stocks Return -Rx Risk - σ Ra 0.18

A 0.18 0.23 Rb 0.15
B 0.15 0.19
σA 0.23
σB 0.19
Risk for different portfolios
e invested in A to construct a minimum

Portfolio 1 Wa 0.50
Wb 0.50

Rp 0.165 16.50 Cov AB

0
σP 0.1492 14.92

Optimum wa 0.405618 40.56%

wb 0.594382 59.44%
Illustration
Stocks Return -Rx Risk - σ Compute Return and Risk for different portfolios
A 24.00% 28.00% •How much should be invested in A to construct
B 19.00% 23.00% variance portfolio?

Correlation Coefficient 0.6

Portfolio Investment in A B A(W) B(W)

1 50% 50.0% 0.50 0.50
2 50% 50.0% 0.50 0.50
3 70% 30.0% 0.70 0.30

Stocks Return -Rx Risk - σ Ra 0.24

A 0.24 0.28 Rb 0.19
B 0.19 0.23
σA 0.28
σB 0.23
Risk for different portfolios
e invested in A to construct a minimum

Portfolio 1 Wa 0.50
Wb 0.50

Rp 0.215 21.50 Cov AB

0.03864
σP 0.2284 22.84

Optimum w 0.263976 26%

Illustration
Stocks Return -Rx Risk - σ Compute Return and Risk for different portfolios
A 12.50% 23.40% •How much should be invested in A to construct
B 18.20% 31.50% variance portfolio?

Correlation Coefficient 0.65

Portfolio Investment in A B A(W) B(W)

1 30% 70.0% 0.30 0.70
2 50% 50.0% 0.50 0.50
3 70% 30.0% 0.70 0.30

Stocks Return -Rx Risk - σ Ra 0.13

A 0.13 0.23 Rb 0.18
B 0.18 0.32
σA 0.23
σB 0.32
Risk for different portfolios
e invested in A to construct a minimum

Portfolio 1 Wa 0.30
Wb 0.70

Rp 0.1649 16.49 Cov AB

0.047912
σP 0.2714 27.14
0.0737 7.37
0.52098

Optimum w 0.882312 88.23%

Year DIV MP
1997.00 1.53 31.25
1998 1.53 20.75 -0.34 0.04896 -28.70
1999 1.53 30.88 0.49 0.073735 56.19
2000 2 67 1.17 0.064767 123.45
2001 2 100 0.49 0.029851 52.24
2002 3 154 0.54 0.03 57.00
52.03 Average
48.29 SD

State of
Economy
pi Ri Pi*Ri Ri-R (Ri-R)2 pi*(Ri-R)2
Boom 0.3 40 12 27 729 218.7
Normal 0.5 10 5 -3 9 4.5
Recession 0.2 -20 -4 -33 1089 217.8
Σ 13 Σ 441
σ 21