Stocks A, B, and C have the same expected return and standard deviation. The following table shows the correlation between the returns on these stocks. Stock A Stock B Stock C Stock A +1.0 Stock B +0.9 +1.0 Stock C +0.1 -0.4 +1.0
Stocks A, B, and C have the same expected return and standard deviation. The following table shows the correlation between the returns on these stocks. Stock A Stock B Stock C Stock A +1.0 Stock B +0.9 +1.0 Stock C +0.1 -0.4 +1.0
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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Stocks A, B, and C have the same expected return and standard deviation. The following table shows the correlation between the returns on these stocks.
Stock A |
Stock B |
Stock C |
|
Stock A |
+1.0 |
||
Stock B |
+0.9 |
+1.0 |
|
Stock C |
+0.1 |
-0.4 |
+1.0 |
Given these correlations, the portfolio constructed from these stocks having the lowest risk is a portfolio:
- Equally invested in stocks A and B.
- Equally invested in stocks A and C.
- Equally invested in stocks B and C.
- Totally invested in stock C.
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