Combine Two Assets with Equal Return-to-Volatility Ratios

One asset has a stated return of1% and standard deviation of1%; another has a stated return of2% and standard deviation of2%. What would you ask before comparing them? For a portfolio allocating50% to each, determine its return and standard deviation. ### Clarifying Questions Are the stated returns expected or historical, and are both returns and standard deviations measured over the same horizon and convention? What is the correlation between the assets? Are costs, liquidity, leverage, and the relevant risk-free rate specified? For the calculation, treat the numbers as same-period expected simple returns and standard deviations with fixed initial50/50 weights. ### What a Strong Answer Covers Compute the expected portfolio return, express volatility as a function of correlation, and explain why the supplied individual statistics do not determine a unique portfolio volatility or investment preference. ### Follow-up Questions - What are the volatility values at correlation -1,0,and1? - Why does equal return divided by standard deviation not necessarily imply equal Sharpe ratio?