Consider the characteristics of the following three stocks: Expected Return Stan

Question

Consider the characteristics of the following three stocks:

                            Expected Return  Standard Deviation

Thumb Services   13%                      23%

Air Comfort         10%                      19%

Sport Garb           10%                       17%

  
The correlation between Thumb Devices and Air Comfort is- 0.12. The correlation between Thumb Devices and Sport Garb is 0.0. The correlation between Air Comfort and Sport Garb is 0.85. If you can pick only two stocks for your portfolio, which would you pick? Why?

Explanation / Answer

correct option is

Combine Thumb Devices and Air Comfort because they are negatively correlated.

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