# Question: Stocks K L and M each has the same expected

Stocks K, L, and M each has the same expected return and standard deviation. The correlation coefficients between each pair of these stocks are:

K and L correlation coefficient = +0.8 K and M correlation coefficient = +0.2 L and M correlation coefficient = −0.4 Given these correlations, a portfolio constructed of which pair of stocks will have the lowest standard deviation? Explain.

K and L correlation coefficient = +0.8 K and M correlation coefficient = +0.2 L and M correlation coefficient = −0.4 Given these correlations, a portfolio constructed of which pair of stocks will have the lowest standard deviation? Explain.

**View Solution:**## Answer to relevant Questions

Considering the world economic outlook for the coming year and estimates of sales and earnings for the pharmaceutical industry, you expect the rate of return for Lauren Labs common stock to range between −20 percent and ...Given: E(R1) = 0:12E(R2) = 0:16E(σ1) = 0:04E(σ2) = 0:06Calculate the expected returns and expected standard deviations of a two-stock portfolio having a correlation coefficient of 0.70 under the following conditions.a. w1 ...The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not ...Assume that you expect the economy’s rate of inflation to be 3 percent, giving an RFR of6 percent and a market return (RM) of 12 percent.a. Draw the SML under these assumptions.b. Subsequently, you expect the rate of ...Draw the security market line for each of the following conditions:a. (1) RFR = 0.08; RM(proxy) = 0.12(2) Rz = 0.06; RM(true) = 0.15b. Rader Tire has the following results for the last six periods. Calculate and compare the ...Post your question