Consider an equally weighted portfolio that contains five stocks. If the average volatility of these stocks is 40% and the average correlation between the stocks is. 5, then the volatility of this equally weighted portfolio is closest to:

The volatility of this equally weighted portfolio is closest to 0.31

Explanation:

Individual Stock + (1 - 1/n) * Average Covariance between the stocks

Var = (1 / 5) (0.40) 2 + (1 - 1/5) (0.5 ((0.4) (0.4)

Var = 0.096

standard deviation = Square root of variance

= Square root of 0.096

= 0.31