Beta and Required Return

Does mixing in a new asset push you above or below your current risk-return tradeoff?

Your Portfolio P

E[R_P] = 12% σ_P = 15% r_f = 2%

Candidate Asset i

E[R_i] 8.0%

σ_i 25.0%

Corr(R_i, R_P) −0.05

Port. weight 1%

Sharpe Ratio

0.600 → 0.632