(a) Four securities have the following standard deviation and correlation coefficient:

correlation coefficient

(%)

A

B

C

D

A

10

1.0

B

8

0.6

1.0

C

20

0.2

-1.0

1.0

D

16

0.5

0.3

0.8

1.0

Note: Correlation coefficient between B and C is -1.0 and between C and D is 0.8

Assuming equal weights for each stock, what are the standard deviations for the following portfolios? which portfolio would an investor prefer and why?

(1)B and C

(2)C and D