John is a fund manager who is going to set up a portfolio with share A and share

John is a fund manager who is going to set
up a portfolio with share A and share B. Details of the shares are shown in the
following table.
Share
A
Share
B
Expected
Return
15%
10%
Standard
Deviation
10%
5%
Correlation
25%
John has invested w1% and
w2% of his capital in share A and share B respectively. Suppose
w1% + w2% = 100%. Also, w1 and
w2 are non-negative numbers. Answer the following
questions.
(a)
Systematic risk and
unsystematic risk are two main types of risks in the stock market. Describe
these two types of risks and explain how the risks affect the standard
deviation and correlation in the above table. Please provide examples in your
explanation.
(8 marks)