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### Quantitative Methods

Topic discussion > Quantitative Methods > Expected Return on Stock

## Expected Return on Stock

 MoneyScienceSep 10 2019 16:57 Suppose we have the following information on stocks $$X$$, $$Y$$, and $$Z$$ : Expected Returns: $$E(RX)=10%$$ , $$E(RY)=12%$$ . Standard Deviations: $$σX=10%$$ , $$σY=15%$$, $$σZ=10%$$  Pairwise Correlations: $$ρXY=0$$ , $$ρXZ=0$$, $$ρYZ=0.5$$ . Assume that the CAPM holds and that the market portfolio consists of the above three stocks weighted equally. Find the expected return of Stock Z. Attempt: We can first get $$σM$$  by using the formula for the variance of a three-asset portfolio. Then, from there, we can solve for the $$β$$ for each stock using $$β=Cov(Ri,RM)σ2M$$. However, I'm not sure how to compute for the correlation between the stock return and the market return.