Perfect Positive Correlation (continued)

• Therefore, the risk of portfolio AB is simply the weighted value of the two assets’ ?.

  • In this case:?p = xA2 ?A2 + xB2 ?B2 + 2 xAxB?A?B?AB?p = .25(.10)2+.25(.20)2+2(.5)(.5)(.10)(.20)?p = .15 or 15%

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