Suppose you have invested in a portfolio P of stocks. At the moment, portfolio P has an expected return of 32% and a volatility of 15%.
Your financial adviser suggests that you add Tesla stock (TSLA) to your current portfolio.
TSLA has an expected return of 39%, a volatility of 58% and a correlation of 0.55 with your current portfolio P. Risk-free interest rate is equal to 2%.
i. Calculate the required return on the TSLA. (5 marks)
ii. Will adding TSLA improve your portfolio? Provide a brief explanation of your answer.