Share Ratio mind benders between, another, question, existing, following

Analyze_This

dont mess with L3 when we in the midst of preparing for the test fool

Muddahudda

The following I put in the L2 forum(I am an L2 taker) but not got any clue to the 2nd and 3rd part of the question, so need help from you guys on the 2nd and 3rd part of the question. Many thanks in advance.


I have a portfoio worth $100,000. My existing portfolio's Sharpe Ratio is 0.12. I am thinking of taking another stock into my portfolio whose Sharpe Ratio is 0.10. I have calculated that the Correlation between my existing portfolio and the new stock is 0.3.

Can I take the new stock into my portfolio, if I do what will be the Sharpe Ratio of my new portfoio? Also, if I decide to take the new stock into my portfolio, what will be the optimal weightage ratio of that new stock and my existing portfoio so that the new Sharpe Ratio is maximum?

Analti_Calte

Wake2000,

We all are in the middle of preparation and the question posed was closely related to the PM concept which carries maximum weight in L3. , if its beyond your capability just ignore it and get on with your life, your 2 cents is not required.