1. Without calculating the portfolio variance explicitly, will the diversification effect hold for a portfolio that consists of 30% NRG and 70% XOM? Defend your answer numerically. You do not need to quantify the diversification effect in this question, just determine whether there will be a diversification effect.

2. Calculate the expected portfolio value and the portfolio variance for a portfolio that consists of 30% NRG and 70% XOM.

Year NRG Return XOM Return 2013 2014 2015 2016 2017 42% 16% -11% 57% 15% 10% 5% -2% -8% 2