Question: Stocks K, L and M each have the same expected return and standard deviation. The correlation coefficients between each pair of these stocks are: Kand

Stocks K, L and M each have the same expected return and standard deviation. The correlation coefficients between each pair of these stocks are:

Kand L correlation coefficient = + 0.8

K and M correlation coefficient = +0.2

L and M correlation coefficient = -0.4

Given these correlations, a portfolio constructed of which pair of stocks will have the lowest standard deviation? Explain. (15 MARKS)

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