I would just like to check if I've done these questions right, I feel like I might have used the complete wrong methods to get my answers.
I've filled in the missing values in the correlation matrix and I've been asked the following questions:
- "An asset manager forms a portfolio by investing 10% of capital in Stock A, 40% of capital in Stock B, and the rest in Stock C. Calculate the expected return and volatility of this portfolio."
- " If you are a portfolio manager, your client requests to invest in the global minimum variance portfolio using Stock B and Stock C. Calculate the weights of capital for this portfolio."
So for Part 1 this is what I did:
I took the expected returns and multiplied them by their percentage in the portfolio; so I had $A = 8 * 0.1 = 0.8$% , $B = 10 * 0.4 = 4$%, $C = 15*0.5=7.5$% and the total expected return of the portfolio would be the sum of these values, which is $12.3$%
For the volatility I used the same method, multiplying the volatility in the table by the percentage of the stock in the portfolio and I got the total volatility as $14.5$%
I'm not sure if my method is correct so please let me know if what I've done is ok or completely invalid.
For Part 2:
I wasn't entirely sure what to do but I added the expected returns of $B$ and $C$ and got $25$%, $100/25 = 4$ so I thought the weights of each stock would be $Weight B= 10*4 = 40$% and $Weight C=15*4=60$% but I'm not sure if this is correct, should I have used the volatility instead since the global minimum variance portfolio cares more about volatility than return so the weights would be $50/50$ ? Or is there a completely different method I should use?
These questions might be very simple for this site but I would just really like to know if my methods are ok or if I'm just making up methods that aren't valid, any help would be appreciated.