Gifford Western Wear makes blue jeans and cowboy shirts. It has seven manufacturing outlets in British Columbia and Alberta. It is seeking to diversify its business and lower its risk. It is examining three companies-a toy company, a boot company, and a highly exclusive jewellery store chain. Each of these companies can be bought at the same multiple of earnings. The following represents information about all the companies.

a. What would happen to Gifford Western Wear's portfolio risk return if it bought Toy Company? Boot Company? or Jewellery Company? Pay particular attention to the first column of correlation data.

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Standard deviation in earnings ($ millions) Correlation Average earnings Sales ($ millions) with Gifford Company Western Wear ($ millions) Gifford Western Wear $150 $10 $3 +1.0 Toy Company Boot Company Jewellery Company 1.2 1.9 150 10 10 10 150 5 -0.6 150