Stocks A, B, and C each have the same expected return and standard deviation. Th
ID: 2781947 • Letter: S
Question
Stocks A, B, and C each have the same expected return and standard deviation. The following shows the correlations between returns on these stocks 8. Stock A Stock B Stock C Stock A Stock B Stodk C +0.9 +0.1 -0.4 Given these correlations, which of the following portfolios constructed from these stocks would have the lowest risk? Explain! a. One equally invested in Stocks A and B b. One equally invested in Stocks A and C c. One equally invested in Stocks B and C. d. One totally invested in Stock C.Explanation / Answer
Option c is correct
It is so because the correlation coefficient between them is the least i.e. -0.4
Lesser the correlation, greater the diversification