Historical Prices Daily Returns

Date SPY VXUS SPY VXUS Summary Statistics

6/24/2021 425.10 66.11 0.59% 0.90% SPY
6/23/2021 422.60 65.52 -0.12% -0.30% Mean 0.134%
6/22/2021 423.11 65.72 0.53% -0.02% Standard Deviation 0.971%
6/21/2021 420.86 65.73 1.43% 0.37% Covariance 0.007%
6/18/2021 414.92 65.49 -1.67% -1.59% Risk Free Rate 0.008%
6/17/2021 421.97 66.55 -0.03% -0.46%
6/16/2021 422.11 66.86 -0.56% -0.86%
6/15/2021 424.48 67.44 -0.18% -0.09%
6/14/2021 425.26 67.5 0.22% 0.12%
6/11/2021 424.31 67.42 0.17% 0.12%
6/10/2021 423.61 67.34 0.46% 0.45%
6/9/2021 421.65 67.04 -0.15% -0.34%
6/8/2021 422.28 67.27 0.02% -0.16%
6/7/2021 422.19 67.38 -0.10% 0.07%
6/4/2021 422.60 67.33 0.91% 0.96%
6/3/2021 418.77 66.69 -0.37% -0.76%
6/2/2021 420.33 67.2 0.16% 0.22%
6/1/2021 419.67 67.05 -0.09% 0.95%
5/28/2021 420.04 66.42 0.18% 0.23%
5/27/2021 419.29 66.27 0.05% 0.23%
5/26/2021 419.07 66.12 0.20% 0.23%
5/25/2021 418.24 65.97 -0.22% 0.27%
5/24/2021 419.17 65.79 1.02% 0.72%
5/21/2021 414.94 65.32 -0.08% -0.27%
5/20/2021 415.28 65.5 1.08% 1.08%
5/19/2021 410.86 64.8 -0.26% -0.70%
5/18/2021 411.94 65.26 -0.86% 0.60%
5/17/2021 415.52 64.87 -0.25% -0.15%
5/14/2021 416.58 64.97 1.54% 1.67%
5/13/2021 410.28 63.9 1.20% 0.53%
5/12/2021 405.41 63.56 -2.12% -1.96%
5/11/2021 414.21 64.83 -0.89% -1.08%
5/10/2021 417.94 65.54 -0.99% -0.82%
5/7/2021 422.12 66.08 0.73% 1.18%
5/6/2021 419.07 65.31 0.80% 0.77%
5/5/2021 415.75 64.81 0.03% 1.03%
5/4/2021 415.62 64.15 -0.62% -1.29%
5/3/2021 418.20 64.99 0.22% 0.85%
4/30/2021 417.30 64.44 -0.66% -1.41%
4/29/2021 420.06 65.36 0.64% -0.02%
4/28/2021 417.40 65.37 -0.03% 0.41%
4/27/2021 417.52 65.1 -0.02% -0.15%
4/26/2021 417.61 65.2 0.21% 0.12%
4/23/2021 416.74 65.12 1.08% 1.13%
4/22/2021 412.27 64.39 -0.91% -0.42%
4/21/2021 416.07 64.66 0.95% 0.95%
4/20/2021 412.17 64.05 -0.73% -1.39%
4/19/2021 415.21 64.95 -0.49% -0.31%
4/16/2021 417.26 65.15 0.33% 0.66%
4/15/2021 415.87 64.72 1.07% 0.68%
4/14/2021 411.45 64.28 -0.34% 0.27%
4/13/2021 412.86 64.11 0.30% 0.58%
4/12/2021 411.64 63.74 0.04% -0.59%
4/9/2021 411.49 64.12 0.73% -0.02%
4/8/2021 408.52 64.13 0.47% 0.63%
4/7/2021 406.59 63.73 0.12% -0.23%
4/6/2021 406.12 63.88 -0.06% -0.58%
4/5/2021 406.36 64.25 1.44% 1.10%
4/1/2021 400.61 63.55 1.08% 1.36%
3/31/2021 396.33 62.7 0.41% -0.03%
3/30/2021 394.73 62.72 -0.27% 0.03%
3/29/2021 395.78 62.7 -0.05% -0.56%
3/26/2021 395.98 63.05 1.61% 1.64%
3/25/2021 389.70 62.03 0.56% 0.65%
3/24/2021 387.52 61.63 -0.51% -1.08%
3/23/2021 389.50 62.3 -0.79% -1.52%
3/22/2021 392.59 63.26 0.80% -0.25%
3/19/2021 389.48 63.42 -0.51% 0.51%
3/18/2021 391.48 63.1 -1.45% -1.17%
3/17/2021 397.26 63.85 0.34% 0.41%
3/16/2021 395.91 63.59 -0.13% 0.24%
3/15/2021 396.41 63.44 0.60% 0.21%
3/12/2021 394.06 63.31 0.13% -0.31%
3/11/2021 393.53 63.51 1.01% 1.41%
3/10/2021 389.58 62.63 0.62% 0.27%
3/9/2021 387.17 62.46 1.43% 1.54%
3/8/2021 381.72 61.51 -0.50% -1.05%
3/5/2021 383.63 62.16 1.84% 0.75%
3/4/2021 376.70 61.7 -1.24% -1.28%
3/3/2021 381.42 62.5 -1.32% -0.48%
3/2/2021 386.54 62.8 -0.78% -0.40%
3/1/2021 389.58 63.05 2.42% 2.19%
2/26/2021 380.36 61.7 -0.52% -1.39%
2/25/2021 382.33 62.57 -2.41% -1.80%
2/24/2021 391.77 63.72 1.10% 0.03%
2/23/2021 387.50 63.7 0.12% 0.25%
2/22/2021 387.03 63.54 -0.77% -1.06%
2/19/2021 390.03 64.22 -0.18% 0.56%
2/18/2021 390.72 63.86 -0.43% -0.84%
2/17/2021 392.39 64.4 0.02% -0.43%
 2/16/2021 392.30 64.68 -0.09% 0.45%
2/12/2021 392.64 64.39 0.49% 0.48%
2/11/2021 390.71 64.08 0.16% 0.75%
2/10/2021 390.08 63.6 -0.04% -0.13%
2/9/2021 390.25 63.68 -0.07% 0.68%
2/8/2021 390.51 63.25 0.72% 0.62%
2/5/2021 387.71 62.86 0.39% 0.69%
2/4/2021 386.19 62.43 1.14% 0.10%
2/3/2021 381.85 62.37 0.08% 0.37%
2/2/2021 381.55 62.14 1.41% 1.21%
2/1/2021 376.23 61.4 1.66% 1.81%
1/29/2021 370.07 60.31 -2.00% -2.32%
1/28/2021 377.63 61.74 0.86% 0.70%
1/27/2021 374.41 61.31 -2.44% -2.33%
1/26/2021 383.79 62.77 -0.16% -0.19%
1/25/2021 384.39 62.89 0.39% 0.14%
1/22/2021 382.88 62.8 -0.35% -0.68%
1/21/2021 384.24 63.23 0.09% 0.13%
1/20/2021 383.89 63.15 1.38% 1.09%
1/19/2021 378.65 62.47 0.79% 1.00%
1/15/2021 375.70 61.85 -0.73% -1.53%
1/14/2021 378.46 62.81 -0.35% 0.88%
1/13/2021 379.79 62.26 0.27% -0.02%
1/12/2021 378.77 62.27 0.02% 0.52%
1/11/2021 378.69 61.95 -0.67% -1.32%
1/8/2021 381.26 62.78 0.57% 1.27%
1/7/2021 379.10 61.99 1.49% 0.42%
1/6/2021 373.55 61.73 0.60% 0.54%
1/5/2021 371.33 61.4 0.69% 1.45%
1/4/2021 368.79 60.52 -1.36% 0.60%
12/31/2020 373.88 60.16 0.51% -0.64%
12/30/2020 371.99 60.55 0.14% 0.55%
12/29/2020 371.46 60.22 -0.19% 0.84%
12/28/2020 372.17 59.72 0.86% 0.61%
12/24/2020 369.00 59.36 0.39% 0.05%
12/23/2020 367.57 59.33 0.09% 0.94%
12/22/2020 367.24 58.78 -0.17% -0.29%
12/21/2020 367.86 58.95 -0.36% -2.21%
12/18/2020 369.18 60.28 -0.82% -0.40%
12/17/2020 372.24 60.52 0.56% 0.70%
12/16/2020 370.17 60.1 0.16% 0.25%
12/15/2020 369.59 59.95 1.35% 1.08%
12/14/2020 364.66 59.31 -0.45% 0.02%
12/11/2020 366.30 59.3 -0.12% -0.49%
12/10/2020 366.73 59.59 -0.03% 0.44%
12/9/2020 366.85 59.33 -0.90% -0.12%
12/8/2020 370.17 59.4 0.29% 0.25%
 12/7/2020 369.09 59.25 -0.21% -0.50%
12/4/2020 369.85 59.55 0.86% 0.92%
12/3/2020 366.69 59.01 -0.03% 0.46%
12/2/2020 366.79 58.74 0.21% 0.07%
12/1/2020 366.02 58.7 1.09% 2.26%
11/30/2020 362.06 57.4 -0.44% -2.18%
11/27/2020 363.67 58.68 0.28% 0.74%
11/25/2020 362.66 58.25 -0.15% -0.34%
11/24/2020 363.22 58.45 1.61% 1.48%
11/23/2020 357.46 57.6 0.60% 0.14%
11/20/2020 355.33 57.52 -0.68% 0.31%
11/19/2020 357.78 57.34 0.42% 0.58%
11/18/2020 356.28 57.01 -1.20% -0.47%
11/17/2020 360.62 57.28 -0.54% 0.00%
11/16/2020 362.57 57.28 1.25% 1.26%
11/13/2020 358.10 56.57 1.38% 1.40%
11/12/2020 353.21 55.79 -0.97% -1.34%
11/11/2020 356.67 56.55 0.74% 0.69%
11/10/2020 354.04 56.16 -0.15% 0.32%
11/9/2020 354.56 55.98 1.26% 2.10%
11/6/2020 350.16 54.83 -0.02% 0.31%
11/5/2020 350.24 54.66 1.95% 2.17%
11/4/2020 343.54 53.5 2.23% 1.56%
11/3/2020 336.03 52.68 1.77% 1.93%
11/2/2020 330.20 51.68 1.12% 1.39%
10/30/2020 326.54 50.97 -1.04% -0.82%
10/29/2020 329.98 51.39 1.02% 0.61%
10/28/2020 326.66 51.08 -3.42% -2.85%
10/27/2020 338.22 52.58 -0.34% -0.36%
10/26/2020 339.39 52.77 -1.85% -1.68%
10/23/2020 345.78 53.67 0.34% 0.56%
10/22/2020 344.61 53.37 0.55% 0.02%
10/21/2020 342.73 53.36 -0.19% -0.28%
10/20/2020 343.38 53.51 0.40% 0.75%
10/19/2020 342.01 53.11 -1.52% -0.45%
10/16/2020 347.29 53.35 -0.06% 0.41%
10/15/2020 347.50 53.13 -0.12% -1.04%
10/14/2020 347.93 53.69 -0.63% -0.33%
10/13/2020 350.13 53.87 -0.65% -0.86%
10/12/2020 352.43 54.34 1.61% 0.59%
10/9/2020 346.85 54.02 0.89% 0.69%
10/8/2020 343.78 53.65 0.89% 0.69%
10/7/2020 340.76 53.28 1.74% 1.00%
10/6/2020 334.93 52.75 -1.42% -0.72%
10/5/2020 339.76 53.13 1.77% 1.47%
10/2/2020 333.84 52.36 -0.95% -0.44%
10/1/2020 337.04 52.59 0.64% 0.81%
9/30/2020 334.89 52.17 0.76% 0.10%
9/29/2020 332.37 52.12 -0.54% -0.13%
9/28/2020 334.19 52.19 1.66% 1.36%
9/25/2020 328.73 51.49 1.62% 0.37%
9/24/2020 323.50 51.3 0.27% -0.18%
9/23/2020 322.64 51.39 -2.32% -1.21%
9/22/2020 330.30 52.02 1.02% -0.19%
9/21/2020 326.97 52.12 -1.11% -2.52%
9/18/2020 330.65 53.47 -1.55% -0.74%
9/17/2020 335.84 53.87 -0.88% -0.04%
9/16/2020 338.82 53.89 -0.40% -0.15%
9/15/2020 340.17 53.97 0.51% 0.69%
9/14/2020 338.46 53.6 1.32% 0.87%
9/11/2020 334.06 53.14 0.05% 0.93%
9/10/2020 333.89 52.65 -1.74% -1.24%
9/9/2020 339.79 53.31 1.97% 1.70%
9/8/2020 333.21 52.42 -2.73% -1.43%
9/4/2020 342.57 53.18 -0.82% 0.21%
9/3/2020 345.39 53.07 -3.44% -2.18%
9/2/2020 357.70 54.25 1.45% 0.84%
9/1/2020 352.60 53.8 0.94% 0.60%
8/31/2020 349.31 53.48 -0.36% -1.15%
8/28/2020 350.58 54.1 0.65% 0.91%
8/27/2020 348.33 53.61 0.22% -0.87%
8/26/2020 347.57 54.08 1.00% 0.52%
8/25/2020 344.12 53.8 0.35% 0.37%
8/24/2020 342.92 53.6 1.01% 1.15%
8/21/2020 339.48 52.99 0.35% -0.23%
8/20/2020 338.28 53.11 0.31% -0.26%
8/19/2020 337.23 53.25 -0.42% -0.62%
8/18/2020 338.64 53.58 0.22% -0.04%
8/17/2020 337.91 53.6 0.32% 0.94%
8/14/2020 336.84 53.1 0.00% -0.49%
8/13/2020 336.83 53.36 -0.18% -0.43%
8/12/2020 337.44 53.59 1.39% 1.82%
8/11/2020 332.80 52.63 -0.83% 0.23%
8/10/2020 335.57 52.51 0.30% 0.31%
8/7/2020 334.57 52.35 0.07% -0.89%
8/6/2020 334.33 52.82 0.67% 0.30%
8/5/2020 332.11 52.66 0.62% 0.59%
8/4/2020 330.06 52.35 0.39% 0.77%
8/3/2020 328.79 51.95 0.70% 1.45%
7/31/2020 326.52 51.21 0.79% -1.48%
7/30/2020 323.96 51.98 -0.36% -1.25%
7/29/2020 325.12 52.64 1.23% 1.27%
7/28/2020 321.17 51.98 -0.63% -0.71%
7/27/2020 323.22 52.35 0.73% 1.43%
7/24/2020 320.88 51.61 -0.64% -0.37%
7/23/2020 322.96 51.8 -1.19% -0.77%
7/22/2020 326.86 52.2 0.57% 0.04%
7/21/2020 325.01 52.18 0.21% 0.56%
7/20/2020 324.32 51.89 0.81% 0.68%
7/17/2020 321.72 51.54 0.29% 0.57%
7/16/2020 320.79 51.25 -0.33% -0.89%
7/15/2020 321.85 51.71 0.92% 0.88%
7/14/2020 318.92 51.26 1.30% 1.12%
7/13/2020 314.84 50.69 -0.87% -0.65%
7/10/2020 317.59 51.02 1.02% 0.51%
7/9/2020 314.38 50.76 -0.57% -0.88%
7/8/2020 316.18 51.21 0.76% 1.29%
7/7/2020 313.78 50.56 -1.03% -1.38%
7/6/2020 317.05 51.27 1.54% 2.23%
7/2/2020 312.23 50.15 0.55% 1.48%
7/1/2020 310.52 49.42 0.70% 0.51%
6/30/2020 308.36 49.17 1.28% -0.18%
6/29/2020 304.46 49.26 1.47% 0.80%
6/26/2020 300.05 48.87 -2.38% -1.31%
6/25/2020 307.35 49.52
 (Asset 1 Weight x Expected Return) + (Asset 2 Weight x Expected Return)
σP = √(wA2 * σA2 + wB2 * σB2 + 2 * wA * wB * σA * σB * ρAB)
Sharpe Ratio = (Rp-Rf)/σp
Summary Statistics Portfolio Weights Portfolio Statistics Capital Allocation Line
VXUS SPY VXUS Return St Dev Sharpe Ratio Weight Return St Dev
0.120% 130% -30% 0.138% 1.05% 12.46% 0% 0.008% 0.00%
0.954% 120% -20% 0.137% 1.02% 12.66% 100% 0.130% 0.92%
110% -10% 0.135% 0.99% 12.84% 200% 0.252% 1.85%
100% 0% 0.134% 0.97% 12.99%
90% 10% 0.133% 0.95% 13.10%
80% 20% 0.131% 0.94% 13.16% Efficient
70% 30% 0.130% 0.92% 13.17%
0.150%
60% 40% 0.128% 0.92% 13.13%
50% 50% 0.127% 0.91% 13.03% 0.140%
40% 60% 0.125% 0.91% 12.87%

Return
0.130%
30% 70% 0.124% 0.92% 12.65% 0.120%
20% 80% 0.123% 0.93% 12.38% 0.110%
10% 90% 0.121% 0.94% 12.07%
0.100%
0% 100% 0.120% 0.95% 11.72% 0.85% 0.90%
-10% 110% 0.118% 0.97% 11.34%
St
-20% 120% 0.117% 1.00% 10.93%
-30% 130% 0.115% 1.02% 10.52%
Optimal Portfolio: 0.130% 0.92% 13.17%

=INDEX(P6:P22,MATCH(MAX(Q6:Q22),Q6:Q22,0),1)
0.130% 0.92% 13.17%
cted Return)
B * σA * σB * ρAB)

E(Rc) = wpE(Rp) + (1 − wp)Rf

Risky asset (assumed weight)

Efficient Frontier & CAL

0.150%
0.140%
0.130%
0.120%
0.110%
0.100%
0.85% 0.90% 0.95% 1.00% 1.05% 1.10%

Standard Deviation
Markowitz created a formula that allows an investor to mathematically trade off risk tolerance and
This theory was based on two main concepts:
1. Every investor’s goal is to maximize return for any level of risk
2. Risk can be reduced by diversifying a portfolio through individual, unrelated securities

MPT works under the assumption that investors are risk-averse,

preferring a portfolio with less risk for a given level of return. Under this assumption,
investors will only take on high-risk investments if they can expect a larger reward.

Under the MPT—or mean-variance analysis—an investor can hold a high-risk asset,
mutual fund, or security, so long as this high-risk investment is minimized by all
underlying assets. The portfolio itself is balanced in a way that its overall risk is lower
than some of its underlying investments. Risk is defined as the range by which an
asset’s price will vary on average, but Markowitz split risk into two subsequent categories

According to MPT, there are two components of risk for individual stock returns.
Systematic Risk: This refers to market risks that cannot be reduced through
diversification, or the possibility that the entire market and economy will show losses
that negatively affect investments. It’s important to note that MPT does not claim to be
able to moderate this type of risk, as it is inherent to an entire market or market segment

Unsystematic Risk: Also called specific risk, unsystematic risk is specific to individual
stocks, meaning it can be diversified as you increase the number of stocks in your portfolio.
de off risk tolerance and reward expectations, resulting in the ideal portfolio.

ated securities

sumption,

risk asset,

isk is lower

uent categories

how losses
t claim to be
arket segment

o individual
s in your portfolio.
Consider the below Portfolios

Scenario Probability Stock Returns

Recession 0.33 -7%
Normal 0.33 12%
Boom 0.33 28%

Step1
Calcualte Securities mean Ret Stock
Mean Returns 11.00%

Step 2
Calculate Securities Variance, Standard Deviation

Scenario Probability Stock Returns

Recession 0.33 -7%
Normal 0.33 12%
Boom 0.33 28%
Step 3
Portfolio Returns for equally weighted
Stock Bond
Weights 50% 50%
Portfolio Returns for equally 9.000%

Step 4
Calculate the Portfolio Covariance, Correlation

Scenario Probability Stock Returns

Recession 0.333 -7%
Normal 0.333 12%
Boom 0.333 28%

Portfolio Covariance
Portfolio Correlation

Stock Bond
Mean Returns 11.00% 7.00%
Weights 50% 50%
Portfolio Returns for equally 9.000%
Stdev 14.31% 8.16%
Portfolio Risk for equally weig 3.082%

Efficient Frontier for 2 securities

Portfolio Risk and Return
% in Stocks % in Bonds Risk
0% 100% 8.16%
5% 95% 7.04%
10% 90% 5.92%
15% 85% 4.80%
20% 80% 3.68%
25% 75% 2.56%
30% 70% 1.44%
35% 65% 0.39%
40% 60% 0.86%
45% 55% 1.97%
50% 50% 3.08%
55% 45% 4.20%
60% 40% 5.32%
65% 35% 6.45%
70% 30% 7.57%
75% 25% 8.69%
80% 20% 9.81%
85% 15% 10.94%
90% 10% 12.06%
95% 5% 13.18%
 100% 0% 14.31%

Portfolio Risk, Returns for various Correlations analysis

Portfolio Risk and Return

Correlation -1

% in Stocks % in Bonds Risk (Correl=-1)

0% 100% 8.16%
5% 95% 7.04%
10% 90% 5.92%
15% 85% 4.79%
20% 80% 3.67%
25% 75% 2.55%
30% 70% 1.42%
35% 65% 0.30%
40% 60% 0.82%
45% 55% 1.95%
50% 50% 3.07%
55% 45% 4.19%
60% 40% 5.32%
65% 35% 6.44%
70% 30% 7.56%
 75% 25% 8.69%
80% 20% 9.81%
85% 15% 10.94%
90% 10% 12.06%
95% 5% 13.18%
100% 0% 14.31%
Bond
Returns
17%
7%
-3%

Bond
7%

Squared Squared
Bond Deviation Deviation
Returns (Stock) (Bond)
17% 0.0108 0.0033
7% 0.0000 0.0000
-3% 0.0096 0.0033
Variance 0.0205 0.0067
Standard Dev 14.31% 8.16%
 Portfolio
Bond Squared
Returns deviation
17% -0.01
7% 0.00
-3% -0.01

-0.01
-0.9987777547
Returns
Portf olo risk , returns
7.00% 0.12

7.20% 0.1

7.40% 0.08

7.60% 0.06

7.80% 0.04

8.00% 0.02

8.20% 0
0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16
8.40%
8.60%
8.80%
9.00%
9.20%
9.40%
9.60%
9.80%
10.00%
10.20%
10.40%
10.60%
10.80%
 11.00%

ons analysis

0.2 1

Risk Risk
(Correl=0.2) Risk (Correl=+1) Returns 0.12

14.45% 2.35% 7.00% 0.1

13.72% 2.13% 7.20%

0.08
12.98% 1.91% 7.40%
12.24% 1.69% 7.60% 0.06

11.51% 1.46% 7.80% 0.04

10.77% 1.24% 8.00% 0.02

10.04% 1.02% 8.20% 0

0 0.02 0.04
9.30% 0.80% 8.40%
8.60% 0.82% 8.60% Risk R
7.90% 0.92% 8.80%
0.12
7.21% 1.03% 9.00%
0.1
6.51% 1.13% 9.20% 0.08

5.82% 1.24% 9.40% 0.06

5.14% 1.34% 9.60% 0.04

4.46% 1.45% 9.80% 0.02

0
0 0.02 0.04 0
 0.06

0.04

0.02

3.78% 1.55% 10.00% 0

0 0.02 0.04 0

3.12% 1.66% 10.20%

2.48% 1.77% 10.40% Risk R
1.89% 1.88% 10.60%
1.41% 2.00% 10.80% 0.12

0.1
1.17% 2.14% 11.00%
0.08

0.06

0.04

0.02

0
0.006 0.008 0.01 0.012
-0.006
ns

100%
stocks

100% bonds

0.12 0.14 0.16

 Risk Returns Correl -1
0.12

0.1

0.08

0.06

0.04

0.02

0
0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16

Risk Returns Correl 0.2

0.12

0.1

0.08

0.06

0.04

0.02

0
0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16
0.06

0.04

0.02

0
0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16

Risk Returns Correl =+1

0.12

0.1

0.08

0.06

0.04

0.02

0
0.006 0.008 0.01 0.012 0.014 0.016 0.018 0.02 0.022 0.024 0.026
100%
stocks
 Finding the mini
You are currently 100% invested in Stock A, which has an expected
Since Stock B is negatively correlated to Stock A and has a higher e
we determined it was beneficial to invest in Stock B so we decided
This combination produced a portfolio with an expected return of
We’re happy that we increased the expected return and lowered t
by investing in Stock B but is this 50/50 portfolio optimal?

Stock A Stock B
Returns 4% 8%
SD 6% 15%
Correlation -0.7
Portfolio SD 5.81% 15.00%

Weight/Portfolio composition 0.000% 100.000%

Portfolio return 8.00%
To Find out the exact Minimum Variance Portfolio allocation of tw
 Graphing portfolio returns
Finding the minimum Variance Portfolio and the efficient frontier
has an expected return of 4% and a standard deviation of 6%.
nd has a higher expected return,
B so we decided to invest 50% of the portfolio in Stock A and 50% of the portfolio in
pected return of 6% and a standard deviation of 5.81%.
n and lowered the standard deviation
ptimal?
C
9.00%
8.00%

Stock A Stock B SD(P) E(RP) 7.00%

100% 0% 6.00% 4.00% 6.00%

5.00%
95% 5% 5.20% 4.20% 4.00%
90% 10% 4.48% 4.40% 3.00%

85% 15% 3.87% 4.60% 2.00%

1.00%
80% 20% 3.45% 4.80% 0.00%
2.00% 4.00% 6.00% 8
75% 25% 3.27% 5.00%
74.419% 25.581% 3.27% 5.02%
70% 30% 3.38% 5.20%
65% 35% 3.76% 5.40%
60% 40% 4.33% 5.60%
55% 45% 5.03% 5.80%
50% 50% 5.81% 6.00%
45% 55% 6.65% 6.20%
40% 60% 7.52% 6.40%
35% 65% 8.41% 6.60%
30% 70% 9.33% 6.80%
25% 75% 10.26% 7.00%
20% 80% 11.19% 7.20%
15% 85% 12.14% 7.40%
10% 90% 13.09% 7.60%
 5% 95% 14.04% 7.80%
0% 100% 15.00% 8.00%

allocation of two assets

tier

0% of the portfolio in Stock B.

Chart Title
.00%
.00%
.00%
.00%
.00%
.00%
.00%
.00%
.00%
.00%
2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%
You want to allocate Rs 19,53,000 between tow stocks of A and B.
A is expected to generate a return of 25% with a standard deviation of 70%.
B' Variance is given 39%
Current Price of Stock B is given as 48
Future one year price of Stock B is 54
Correlation between Stock A and B 0.2
What combination of these two stocks will minimize Risk
What is the expected return of the portfolio?

Given
Current price (B) 48
Future price (B) 54
Correlataion (A,B) 0.2

SD (A) 70%
VAR(A) 0.49
Ret(A) 25%

Return (B) 12.50%

Var 39.0%
SD (B) 62.4%

Covariance (AB) 8.743%

Correl * SD (A) * SD(B)
A and B.
deviation of 70%.

WA 44.32%
WB 55.68%

Return of the portfolio

18.04%
Min Variance
Two securities with -1 correlation

When Correl is -1
W1 Sig(2)/(sig1+sig2)
W2 Sig(1)/(sig1+sig2)