Work out the standard deviation of returns on an equally weighted portfolio of 6 identical stocks, each of which is expected to yield a return of 9% with a variance of 0.16
Work out the standard deviation of returns on an equally weighted
portfolio of 6 identical stocks, each of which is expected to yield a return of 9% with a variance of 0.16. You are also given that the correlation between the returns on any pair of the stocks in the market is 0.36. Work out the standard deviation of returns if you increased the size of the portfolio to (a) 11 stocks and (b) 16 stocks. Work out Dsp/Dn where Dsp represents the change in the standard deviation of returns on the portfolio and Dn the number of stocks in the portfolio as you go (i) from 1 stock to 6 stocks, (ii) from 6 stocks to 11 stocks, and (iii) from 11 stocks to 16 stocks.
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