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Calculate the expected return and standard deviation

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Question - A portfolio consists of three securities Forge, Petro and Wimco with the following parameters:

Forge Petro Wimco Corr.: Expected return (%) 30 45 35

Standard deviation (%) 19 32 28 Correlation (Cor.):

Forge & Petro +0.40 Petro & Wimco -0.30

Forge & Wimco +0.503

An investor can either invest in Portfolio 1 or Portfolio 2 in the proportion given below.

Required -

(a) Calculate the expected return and standard deviation for each of the two portfolios.

(b) Explain the diversification effect and the relationship between correlation of assets.

Reference no: EM133056655

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