Question: 1. Covariance, correlation, and diversification Consider two stocks: stock A and stock B. Suppose that these two stocks that generally have similar monthly returns each

stock B. Suppose that these two stocks that generally have similar monthly

1. Covariance, correlation, and diversification Consider two stocks: stock A and stock B. Suppose that these two stocks that generally have similar monthly returns each month. Consider a portfolio that consists of half of your money in stock A and half of your money in stock B. In such a portfolio, there is ability to reduce risk, relative to holding a portfolio consisting of only one of the stocks. 1. Covariance, correlation, and diversification 2. 3. siepirifin Consider two stock: stock: Suppose that these two sto irally have similar monthly cetums cach month. Censider a portfolio that conalets of half of your money in stock A and half of your mi B. In such a portfolio, there is ability to reduce risk, relative to holfing a portfolio consiseng of only one of the stocks

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