1. Standard deviation of the portfolio with stock a is:

2. Standard deviation of the portfolio with stock b is:

Which stock should you add and why?

You have a portfolio with a standard deviation of 24% and an expected return of 19%. You are considering adding one of the two stocks in the following table. If after adding the stock you will have 30% of your money in the new stock and 70% of your money in your existing portfolio, which one should you add? Expected Return 12% 12% Standard Deviation 25% 16% Correlation with Your Portfolio's Returns 0.2 0.6 Stock A Stock B