Medium · Linear Algebra & Optimization · Numerical · ~6 min · #35

Two-Asset Minimum-Variance Portfolio

Real interview · Morgan Stanley

Asset 1 has volatility 10% and asset 2 has volatility 20%. Their returns are uncorrelated. You hold a fully invested portfolio with weight $w$ in asset 1 and $1 - w$ in asset 2.

Which $w$ minimises the portfolio variance?

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Worked solution

Give the problem an honest attempt first, then reveal the full explanation.

Reported in interviews

Morgan StanleyGlassdoor interview question
Reported with variances 0.3 and 0.2 and correlation 0.5 (about 30% in the riskier stock).

Candidate-reported and unverified; the firm may phrase it differently or no longer ask it. The wording here is our own paraphrase, and the solution was written and checked independently of any answers posted at the source.

Concepts

Minimum-variance portfolioInverse-variance weighting

Relevant for

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