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Question
Assume that you are given the following means, standard deviations, and correlations for the annual return on three stocks.| Stock 1 | Stock 2 | Stock 3 | |
| Mean return | 0.15 | 0.18 | 0.23 |
| Stdev. of return | 0.18 | 0.28 | 0.38 |
| Correlation matrix | |||
| Stock 1 | Stock 2 | Stock 3 | |
| Stock 1 | 1.00 | 0.62 | 0.72 |
| Stock 2 | 0.62 | 1.00 | 0.39 |
| Stock 3 | 0.72 | 0.39 | 1.00 |
The correlation between stocks 1 and 2 is 0.62, between stocks 1 and 3 is 0.72, and between stocks 2 and 3 is 0.39. You have $12,000 to invest and can invest no more than 55% of your money in any single stock. Determine the minimum variance portfolio that yields an expected annual return of at least 0.15
Answer
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