Question: Q1. Please select all correct statements. A. To achieve a well-diversified portfolio, one should choose stocks with correlations close to +1 with each other. B.

Q1.

Please select all correct statements.

A. To achieve a well-diversified portfolio, one should choose stocks with correlations close to +1 with each other.

B. Unsystematic risk is compensated for by the risk premium.

C. When measuring co-movement of two stocks, covariance is a better measure than correlation.

D. When computing the expected return on a portfolio of stocks the portfolio weights are based on the market value of the total shares held in each stock.

E. If a stock portfolio is well diversified, then the portfolio variance will be an arithmetic average of the variances of the individual securities in the portfolio.

Q2.

The variances of stocks A and B are 1 percentage square and 4 percentage square, respectively. If the covariance between the two stocks is -1.7 percentage square, what is the correlation?

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