Portfolio Standard deviation

Kadima Corporate and Investment Bank has a portfolio of two loans with a total value of R10 million. The weight within the portfolio is equal between the two loans. The following information regarding the loans in the portfolio is provided: –

It is determined that the covariance between the two loans is 4%.

1. Determine the expected return and standard deviation of the portfolio.
2. How significant is a correlation to credit portfolio risk management?

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