4) Johnson & Johnson and Walgreen Company have a correlation of 16% and expecte returns and standard deviations as shown below. E(r) σ Johnson & Johnson 8% 17% Walgreen Company 11% 21% a) Calculate the expected return and volatility of a portfolio that is equally invested in the two stocks that consists of a long position of $12,000 in Johnson & Johnson and a sho position

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.