Question: Consider two stocks, A and B, whose returns in a boom and a recession are given in the table below. Suppose that there is a

Consider two stocks, A and B, whose returns in a boom

Consider two stocks, A and B, whose returns in a boom and a recession are given in the table below. Suppose that there is a 10% chance of a recession next year. How would you allocate money between these two stocks so as to minimize your risk? Are you able to perfectly eliminate your risk? Explain. Recession Boom Stock A -15% +20% Stock B +10% -2%

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