Problem $3$: Assessing diversification benefits $($Mark: $10)$ The manager of SureGain Fund, located in Perth, came to know that you are an expert financial specialist. Before offering you a job as a financial analyst in his firm, he wanted you to do some analyses for one of his clients. He supplied you the following data: Shares Expected return $(\%)$ Standard Deviation $(\%)$ Western Mining Ltd $98$ SmartHouse Ltd $1348$ Correlation coefficient between the returns of the two shares is $0\mathrm{.}80.$ A client currently has all her wealth invested in Western Mining shares. She wishes to diversify her portfolio by redistributing her wealth such that $30\%$ is invested in Western Mining shares and $70\%$ is invested in SmartHousu shares. You constructed the portfolio and reported the results $($expected return and standard deviation$)$ to her. However, she seemed quite upset. She said, $$I thought the whole purpose of diversification was to reduce risk; however, the results show that the variability of my $6$ portfolios has actually been increased from what it was when I invested only in Western Mining Ltd$.$ Provide a response to your client that demonstrates that the new portfolio does or does not reflect the benefits of diversification. Show all necessary calculations.