A portfolio is equally split between 10 different stocks, each of which has a beta of 1 and the same correlation with the market portfolio. The idiosyncratic component of returns is uncorrelated across stocks. The annualized volatility of the market is 15%, and of the portfolio is 17%. (a) What is the volatility of each stock? (b) What is the correlation between each stock and the market? (c) What is the correlation between one stock and another?
A portfolio is equally split between 10 different stocks, each of which has a beta of 1 and the same correlation with the market portfolio. The idiosyncratic component of returns is uncorrelated across stocks. The annualized volatility of the market is 15%, and of the portfolio is 17%. (a) What is the volatility of each stock? (b) What is the correlation between each stock and the market? (c) What is the correlation between one stock and another?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 6P
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A portfolio is equally split between 10 different stocks, each of which has a beta of 1 and the same correlation with the market portfolio. The idiosyncratic component of returns is uncorrelated across stocks. The annualized volatility of the market is 15%, and of the portfolio is 17%.
(a) What is the volatility of each stock?
(b) What is the correlation between each stock and the market?
(c) What is the correlation between one stock and another?
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