Shares of a company A are sold at 10$ per share. Shares of company B are sold at 50$ per share. According to a market analyst, 1 share of each company can either gain 1$, with probability 0.5, or lose 1$, with probability 0.5, independently of the other company. Which of the following portfolios has the lowest risk:
a) 100 shares of A
b) 50 shares of A + 10 shares of B
c) 40 shares of A + 12 shares of B

I'm having troubles converting the wording into mathematical terms.

I think E[A] = 0 and E[B] = 0. I need to find which portfolio has the lowest variance. Not sure how to go from here

Question

Shares of a company A are sold at 10$ per share. Shares of company B are sold at 50$ per share. According to a market analyst, 1 share of each company can either gain 1$, with probability 0.5, or lose 1$, with probability 0.5, independently of the other company. Which of the following portfolios has the lowest risk:
a) 100 shares of A
b) 50 shares of A + 10 shares of B
c) 40 shares of A + 12 shares of B

I'm having troubles converting the wording into mathematical terms. 

I think E[A] = 0 and E[B] = 0. I need to find which portfolio has the lowest variance. Not sure how to go from here

anonymous · Answer

Also, if E = 0, isn't it weird to invest into something that gives no gain?