=+LG 4 P8–15 Correlation, risk, and return Nikki Williams wishes to evaluate the risk and return behaviors associated with various combinations of assets X and Y under three assumed degrees of correlation: perfectly positive, uncorrelated, and perfectly negative. The expected returns and standard deviations calculated for each of the assets are shown in the following table.

Asset Expected return, r Standard deviation, S X 10% 5%
Y 15 8