Portfolio question

[mtolic]

A potrtfolio manager has identified two securities for her portfolio. Their expected returns and standard deviations are given below:

Security A - returns: 0.12 ; Standard deviation: 0.22.
Security B - returns: 0.08 ; Standard deviation: 0.13.

The manager weights securities A and B in proportions of 3/5 and 2/5 respectively. What is the correlation between A and B if the portfolio standard deviation is 17%?

A) 1.00
B) 0.64
C) 0.50
D) 0.80
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I can't seem to give an rigth answe to this one. I just can't find the way to find Cov(A,B) to calculate correlation. Is there any other way of calculating this?

 

[Dsylexic]

B

sq (pf std ) = sq (w1*sd1) +sq (w2*sd2) +2w1w2 *cov(a,b)

 

[Kerry1]

Thats smart Dyslexia, I wouldnt have thought of that.... solve for Cov(a,b)

 

[ole boy]

Or you could just solve for correlation... cov = corr * sd * sd

Edit: Sorry, solve the above equation for corr instead of cov.



Edited 1 time(s). Last edit at Monday, May 14, 2007 at 10:23AM by ole boy.