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Arbor Systems and Gencore stocks both have a volatility of

Arbor Systems and Gencore stocks both have a volatility of 40%. Compute the volatility of a portfolio with 50% invested in each stock if the correlation between the stocks is

(a) +1,

(b) 0.50,

(c) 0,

(d) -0.50, and

(e) -1.0.

In which cases is the volatility lower than that of the original stocks?

(a) +1,

(b) 0.50,

(c) 0,

(d) -0.50, and

(e) -1.0.

In which cases is the volatility lower than that of the original stocks?

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