Explanation:
Since the correlation between A and B IS 0, the formula for Portfolio VaR reduces to:
VaRₚ = √(α²w₁²σ₁² + α²w₂²σ₂²) = √(VaR₁² + VaR₂²)
VaR of portfolio at a zero correlation is
√[(7.9)² + (5.7)²] = 9.74 million
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Q.3159 Donald Clayton is an investment analyst at XYZ Corporation. Clayton wants to construct a portfolio made up of two stocks, A and B. Given VaRₐ = $7.9 million and VaRᵦ = $5.7 million. Calculate the portfolio VaR assuming that the two stocks are uncorrelated.
A
$6.3 million
B
$10.52 million
C
$13.6 million
D
$9.74 million