Assume there is a fixed exchange rate between the Canadian and U. S. dollar. The expected return and standard deviation of return on the U. S. stock market are 18% and 15%, respectively. The expected return and standard deviation on the Canadian stock market are 13% and 20%, respectively. The covariance of returns between the U. S. and Canadian stock markets is 1.5%.
If you invested 50% of your money in the Canadian stock market and 50% in the U. S. stock market, the standard deviation of return of your portfolio would be __________.
sP = [(0.5)2(15%)2 + (0.5)2(20%)2 + 2(0.5)(0.5)(1.5)]1/2 = 12.53%.
View more: Chapter 25 - International Diversification
