To calculate the expected return and volatility for a portfolio equally invested in Johnson & Johnson and Walgreens Boots Alliance stocks, we proceed as follows:

a. Expected Return

The expected return of the portfolio ($E[R_p]$) is given by the weighted sum of the expected returns of the individual stocks:

[ E[R_p] = w_1E[R_1] + w_2E[R_2] ]

Where:

• $w_1 = w_2 = 0.5$ (equal investment),
• $E[R_1] = 12\%$ (Johnson & Johnson),
• $E[R_2] = 17\%$ (Walgreens Boots Alliance).

Substitute the values:

$E[R_p] = 0.5 \times 12 + 0.5 \times 17 = 6 + 8.5 = 14.5\%$

So, the expected return is 14.50%.

---

b. Volatility (Standard Deviation)

The volatility ($\sigma_p$) of the portfolio is given by:

$\sigma_p = \sqrt{w_1^2\sigma_1^2 + w_2^2\sigma_2^2 + 2w_1w_2\rho\sigma_1\sigma_2}$

Where:

• $w_1 = w_2 = 0.5$,
• $\sigma_1 = 12\%$ (Johnson & Johnson's standard deviation),
• $\sigma_2 = 21\%$ (Walgreens Boots Alliance's standard deviation),
• $\rho = 0.44$ (correlation between the stocks).

Substitute the values:

$\sigma_p = \sqrt{(0.5)^2(12)^2 + (0.5)^2(21)^2 + 2(0.5)(0.5)(0.44)(12)(21)}$

Step-by-step:

1. Compute the squared weights: $(0.5)^2 = 0.25$.
2. Compute the squared volatilities: $(12)^2 = 144, \quad (21)^2 = 441.$
3. Compute the first two terms: $0.25 \times 144 = 36, \quad 0.25 \times 441 = 110.25.$
4. Compute the covariance term: $2 \times 0.5 \times 0.5 \times 0.44 \times 12 \times 21 = 55.44.$
5. Add these together: $36 + 110.25 + 55.44 = 201.69.$
6. Take the square root: $\sigma_p = \sqrt{201.69} \approx 14.2\%.$

So, the volatility is approximately 14.20%.

---

Final Results:

• Expected Return: $14.50\%$,
• Volatility (Standard Deviation): $14.20\%$.

Let me know if you'd like additional details or explanations.

---

Follow-up Questions to Consider:

1. How does the correlation between the stocks impact the portfolio volatility?
2. What would happen to the portfolio's expected return if the weights were not equal?
3. If the correlation were $-1$, what would be the portfolio volatility?
4. How can diversification reduce portfolio risk in this context?
5. What is the significance of the portfolio’s expected return and volatility for an investor?

Tip: Diversification benefits increase as the correlation between assets decreases, reaching a maximum when the correlation is negative.