4.134 Diversification.

CASE 4.3 Currently, Michael is exclusively invested in the Fidelity Biotechnology fund. Even though the mean return for this biotechnology fund is quite high, it comes with greater volatility and risk. So, he decides to diversify his portfolio by constructing a portfolio of 80% biotechnology fund and 20% information services fund. Based on the provided historical performance, what is the expected return and standard deviation of the portfolio? Relative to his original investment scheme, what is the percentage reduction in his risk level (as measured by standard deviation) by going to this particular portfolio?

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