Quantitative Methods - Quantitative Methods Section 2
46. The covariance matrix for a portfolio is given below.
| Security | A | B |
| A | 480 | 140 |
| B | 140 | 600 |
The correlation for the portfolio is closest to:
- Option : A
- Explanation : Standard Deviation of A = √480= 21.91 Standard Deviation of B = √600 = 24.49 Corelation = 0.26
- Option : C
- Explanation : The total portfolio return is calculated as the weighted average return of the portfolio constituents. Portfolio return = (0.6 * 0.35) + (0.4 * 0.15) = 0.27 = 27.0%
48. The table below shows information on two portfolios:
| Fund A | Fund B | ||
| Portfolio weights (%) | 45 | 55 | |
| Expected returns (%) | 14 | 18 | |
| Standard deviations (%) | 25 | 32 | |
| Correlation between the returns of Fund A and Fund B | 0.85 | ||
The portfolio standard deviation of returns is closet to:
49. The table below shows weighting and returns of different asset classes comprising a portfolio:
| Asset class | Asset allocation (weight) (%) | Asset class return (%) | Correlation with equities class (%) |
| Equities | 65 | 22 | 100 |
| Bonds | 30 | 8 | 30 |
| Cash and equivalents | 5 | 1 | 25 |
Based on the data given in the table, the portfolio return is closest
to:
to:
- Option : B
- Explanation : The portfolio return is the weighted mean return and is calculated as:0.65 * 22 + 0.30 * 8 + 0.05 * 1 = 16.75.
| Company | Expected Return | Standard Deviation |
| Gala Cement | 10% | 8% |
| Aqua Fertilizer | 17% | 20% |
The covariance between these two stocks is 0.005. Arvind is considering adding another stock, Teragon Foods. Teragon Foods has a correlation coefficient of 0.4 with the current portfolio. Which of the following statements is least accurate?
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