Your swing book has Sharpe 0.9 and your intraday book Sharpe 0.6, with daily P&L correlation 0.2. (a) Compute the maximum Sharpe of the combination, the volatility allocation to each book (each book's standalone volatility as a share of the sum of standalone volatilities), and each book's Euler risk share (14.4). (b) Compute the Sharpe of an equal-risk combination. (c) Above what correlation does adding the intraday book not improve the combination at all?
M14 · Problem 10 ★ Check
Two books
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