One basic theory of investing is diversication. The idea is that you want to have a basket of stocks that do not all move in

One basic theory of investing is diversification. The idea is that you want to have a basket of stocks that do not all “move in the same direction.” In other words, if one investment goes down, you don't want a second investment in your portfolio that is also likely to go down. One hallmark of a good portfolio is a low correlation between investments. The following data represent the annual rates of return for various stocks. If you only wish to invest in two stocks, which two would you select if your goal is to have low correlation between the two investments? Which two would you select if your goal is to have one stock go up when the other goes down?

Rate of Return Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Cisco Systems 1.31 0.286 0.527 0.277 0.850 0.203 0.029 0.434 0.044 0.396 0.459 0.185 Walt Disney 0.015 0.004 0.277 0.203 0.444 0.202 0.129 0.443 0.043 0.306 0.417 0.155 General Electric 0.574 0.055 0.151 0.377 0.308 0.207 0.014 0.093 0.126 0.593 0.102 0.053 Exxon Mob TECO Energy 0.151 0.127 0.066 0.089 0.206 0.281 0.118 0.391 0.243 0.193 0.303 0.849 0.150 0.369 0.004 0.128 0.170 0.051 0.058 0.355 0.249 0.044 Dell 0.319 0661 0.553 0.031 0.254 0.234 0.288 0.164 0.033 0.580 0.393 0.323 0.023