Consider the characteristics of the following three stocks: T& Company, Expected
ID: 2625994 • Letter: C
Question
Consider the characteristics of the following three stocks:
T& Company, Expected Return = 18%; Standard Deviation = 25%
A& Company, Expected Return = 12%; Standard Deviation = 18%
S& Company, Expected Return = 11%; Standard Deviation = 15%
The correlation between T& Company and A& Company is -0.2. The correlation between T& Company and S& Company is -0.21. The correlation between A& Company and S& Company is 0.95. If you can pick only two stocks for your portfolio, which would you pick? Why?
Explanation / Answer
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