Consider two stocks, Coca-Cola Company (KO) and
Pepsico, with expected returns of 8% and 12% respectively. Assume
that the stocks have standard deviations of 12% and 14%
respectively.

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Question: Consider two stocks, Coca-Cola Company (KO) and Pepsico, with expected returns of 8% and 12% resp…
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(my personal calculations after finding the weights
of KO and PEP in a portfolio with a -1 correlation): the
expected return on this portfolio is E(return_portfolio) =
W*E(return_KO) + (1-W)*E(return_PEP) = 0.0981 or 9.81% =====> IS
THIS THE MARKET RETURN? I DON’T KNOW

covariance of the two stocks = -1 * (0.12*0.14) =
-0.168

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