The French Stock Market Has a Sigma of 20%, When

question 1

Essay

The French stock market has a sigma of 20%, when computed in euros. The U.S. stock market has a sigma of 16% in US$ and the €/US$ exchange rate has a sigma of 6%.
a. Assuming that the correlation between stock market and currency movements is zero, what is the sigma of the U.S. stock market when expressed in €.
b. Using this number, calculate the sigma, in €, of a portfolio made up of 50% of French stocks and 50% of U.S. stocks (zero-correlation between the two markets).

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