Consider yourself a rational investor and you are evaluating what to include in your 2-stock portfolio. What will you most likely do? Invest in Meralco and SMC Power stocks because they are in the same industry and have shown a higher positive correlation of 0.80 which is good for diversification. Invest in SMC Power and Robinsons because they are negatively correlated. Invest in Robinsons Retail and BDO Unibank because regardless of the correlation coefficient, they both are, or are affiliated with companies in the same retail market. BDO is affiliated with SM Malls and Supermarket. Invest in BDO Unibank and Meralco because the BDO Unibank is a supporting industry to Meralco by providing loans. This is evidenced by a high positive correlation of 0.60. None of the above.
Consider yourself a rational investor and you are evaluating what to include in your 2-stock portfolio. What will you most likely do? Invest in Meralco and SMC Power stocks because they are in the same industry and have shown a higher positive correlation of 0.80 which is good for diversification. Invest in SMC Power and Robinsons because they are negatively correlated. Invest in Robinsons Retail and BDO Unibank because regardless of the correlation coefficient, they both are, or are affiliated with companies in the same retail market. BDO is affiliated with SM Malls and Supermarket. Invest in BDO Unibank and Meralco because the BDO Unibank is a supporting industry to Meralco by providing loans. This is evidenced by a high positive correlation of 0.60. None of the above.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider yourself a rational investor and you are evaluating what to include in your 2-stock portfolio. What will you most likely do?
Invest in Meralco and SMC Power stocks because they are in the same industry and have shown a higher positive correlation of 0.80 which is good for diversification.
Invest in SMC Power and Robinsons because they are negatively correlated.
Invest in Robinsons Retail and BDO Unibank because regardless of the correlation coefficient, they both are, or are affiliated with companies in the same retail market. BDO is affiliated with SM Malls and Supermarket.
Invest in BDO Unibank and Meralco because the BDO Unibank is a supporting industry to Meralco by providing loans. This is evidenced by a high positive correlation of 0.60.
None of the above.
Transcribed Image Text:Stock
Industry
Correlation with these following stocks
Meralco
SMC
BDO
Robinsons
Power
Unibank
Retail
Meralco
Power
1.00
0.80
0.60
0.30
SMC
Power
0.80
1.00
-0.01
-0.10
Power
BDO
Financial
0.60
-0.01
1.00
0.10
Unibank
Institution
Robinsons
Retail
0.30
-0.10
0.10
1.00
Retail
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