Ask a question

A has an expected return of 10%

If you have 2 assets: A has an expected return of 10% and has a standard deviation of 25%, B has an expected return of 8% and a standard deviation of 25%. For a portfolio with 1/2 weight in each of the 2 assets, what correlation between the assets would make the portfolio standard deviation 25% (the same as each asset indovidually)?
Can you provide the equation and walk me through the steps? 
Am I calculating the Sharpe ratio? I don't understand what it's asking?

1 Answer by Expert Tutors

Tutors, sign in to answer this question.
Luis O. | Revealing the “why” behind your class’s “how!”Revealing the “why” behind your class’s ...
5.0 5.0 (17 lesson ratings) (17)
Nope, the Share ratio is used to assess the relative preformance of an asset.
Normally, a question is asking you to find the standard deviation of the two assets when they are treated as a single set.  It involves comparing the standard deviation of A and of B and their correlation.
This question is asking you to work slightly backwards. Do you know about something called Covariance and the risk of many assets?