You are considering investing in two stocks to form a portfolio. You are very risk averse...
You are considering investing in two stocks to form a portfolio. You are very risk averse (you do not like risk). Which one of the following stock combinations will you choose for your portfolio (these are your only options)?
Stocks A & B which have a correlation coefficient of +1.0.
Stocks C & D which have correlation coefficient of -0.6.
Stocks G & H which both have a beta of 2.0.
Stocks E & F which have a correlation coefficient of 0 (zero).
Homework Answers
Stocks C & D which have correlation coefficient of -0.6.
This portfolio will be chosen as it's standard deviation will be lowest due to negative correlation between stocks.
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