I am not quite sure I understand why my answer is wrong.
A portfolio manager creates the following portfolio:
1- Weight 0.3, Standard dev. 20%
2- Weight 0.7, Standard dev. 12%
If the standard deviation of the portfolio is 14.40%, the correlation between the two securities is equal to:
The correct answer is C. The example doesn’t really tell you they are perfectly correlated, so what I tried doing was calculating it through the long formula, the following way:
14.4% = (0.3^2*0.2^2 + 0.7^2 * 0.12^2 + 0.3 * 0.7 * X * 0.2 * 0.12)^0.5
I don’t arrive to 1.0, and in fact, if then I try plugging the 1 directly in the X and seeing if I get to 14.4%, I end up getting 12.52%?