7. Using historical data to measure portfolio risk and correlation coefficient Karine is an investor who believes that past variability of stocks is a reasonably good estimate of future risk associated with the stocks. Karine works on creating a new portfolio and has already purchased stock A. Now she considers two other stocks, B and C. Karine collected data on the historic rates of return for all three stocks, which are presented in the following table. Complete the table by calculating standard deviations for each stock: Year Stock A Stock B Stock C 2015 30% 25% -10% 2016 25% 30% -5% 2017 -5% 30% -10% -5% 2018 -10% 25% Average return Estimated standard deviation Suppose Karine can only afford to complement stock A by adding just one of the two other stocks, either stock B or stock C. Complete the following table by computing correlation coefficients between stocks A and B and between stocks A and C, and calculate average returns and standard deviation for the two potential portfolios, AB and AC: Stocks A and B Stocks A and C Correlation coefficient Average return Standard deviation Suppose Karine has to choose between two portfolios, AB and AC. Karine will be better off choosing Portfolio AB Which of the following statements about portfolio diversifications are correct? Check all that apply. Portfolio AC The lower the stocks' correlation coefficients, the lower the portfolio's risk. It is impossible to form completely riskless stock portfolios. The risk of a portfolio increases as the number of stocks in the portfolio increases. Risk can be completely eliminated by adding a sufficient number of partially correlated stocks