Question: Bonds A, B and C have the same standard deviation of the rates of return (A= B = C = 15%). The correlation coefficients between

Bonds A, B and C have the same standard deviation of the rates of return (A= B = C = 15%). The correlation coefficients between the returns of these securities are:

	Titre A	Titre B	Titre C
Titre A	1
Titre B	0.65	1
Titre C	0.30	-0.85	1

If you build 3 portfolios as follows:

Portfolio 1: An equally weighted portfolio composed of securities A and B Portfolio 2: An equally weighted portfolio composed of securities A and C Portfolio 3: An equally weighted portfolio composed of securities B and C

Which of these portfolios has the lowest degree of risk? Justify your answer.

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