the standard deviation of the portfolio's return is lower thanthose of the two securities, A and B. What is the intuition behindthis? Is it always the case? Examine how the returns on these twosecurities behave. Do they move together or in oppositedirections?
Meaning of the Beta
If there is a security with a negative beta, for example -0.5,what can you say about the expected return of the security based onthe Capital Asset Pricing Model (CAPM), or the Security Market Line(SML)? Would it be greater or smaller than the risk-free interestrate? How can you explain your answer intuitively?
