Question: Question 1: Diversification Statistics for three stocks, A, B, and C, are shown in the following tables. Asset: A B C Standard Deviation 40% 20%

Question 1: Diversification Statistics for three stocks, A, B, and C,

Question 1: Diversification Statistics for three stocks, A, B, and C, are shown in the following tables. Asset: A B C Standard Deviation 40% 20% 40% Table 1: Standard deviation of returns Asset: AB C 00 0.90 0.50 0.90 1.00 0.10 0.50 0.10 1.00 Table 2: Correlation matrix Assume that you are given a choice between a portfolio made up of equal amounts of stocks A and B or a portfolio made up of equal amounts of stocks B and C, which portfolio would you choose? Justify your

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