23. Gifford Western Wear makes blue jeans and cowboy shirts. It has seven manufacturing outlets in Texas, Oklahoma, and New Mexico. It is seeking to diversify its business and lower its risk. It is examining three companies—a toy company, a boot company, and a highly exclusive jewelry store chain. Each of these companies can be bought at the same multiple of earnings. The following represents information about all the companies.

a. What would happen to Gifford Western Wear’s portfolio risk-return if it bought the toy company? the boot company? the jewelry company? Pay particular attention to the first column of correlation data.

b. If you were going to buy one company, which would you choose? Why?

c. If you wanted to buy two companies, which would you choose? Why?

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Correlation with Gifford Average Earnings ($ millions) $10 10 Standard Deviation in Earnings ($ millions) $3 Western Company Wear Sales ($ millions) Gifford Western Wear +1.0 $150 Toy Company +2 150 Boot Company +.9 150 10 Jewelry Company -.6 150 10 659