Arbor Systems and Gencore stocks both have a volatility of 40%. Compute the volatility of a portfolio with 50% invested in each stock if the correlation between the stocks is

(a) +1,

(b) 0.50,

(c) 0,

(d) −0.50, and

(e) −1.0. In which cases is the volatility lower than that of the original stocks?

Appendix