A junior analyst is working for a portfolio manager.The analyst has been researching a value stock that has a low dividend yield, but also low idiosyncratic risk, good growth opportunities, and a positive expected return.He wants to recommend that the stock be added to the portfolio - even though it is a small stock that might be expensive to trade.He pitches the stock to his boss who tells him that she will only consider adding the stock if it benefits the diversification of the overall portfolio.He goes back to his office and runs the numbers.He finds that the stock has zero correlation with the overall portfolio.What should he tell his boss?

Answer rating: 100% (QA)

The junior analyst should inform his boss that adding the value stock to the portf... View the full answer