Question: Stock A and Stock B each have an expected return of 12 percent, a beta of 1.2, and a standard deviation of 25 percent. Portfolio

Stock A and Stock B each have an expected return of 12 percent, a beta of 1.2, and a standard deviation of 25 percent. Portfolio P has half of its money invested in Stock A and half in Stock B. Which of the following statement(s) is (are) most correct?

A.None of these statements are correct.

B.There will be maximum diversification benefit to forming Portfolio P if Stock A and Stock B are perfectly positively correlated.

C.There will be no diversification benefit to forming Portfolio P if Stock A and Stock B are perfectly positively correlated.

D.There will be partial diversification benefit to forming Portfolio P if Stock A and Stock B are perfectly positively correlated.

E.The more negatively correlated Stock A and Stock B are, the lesser the diversification benefit to forming Portfolio P.

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