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Anne Grace has a $900000 diversified portfolio. She subsequently inherits ABC Company common stock worth $100 000. Her financial adviser provided her with the following estimates: Risk and return characteristics The correlation coefficient of the ABC stock returns with the original returns is 0.40. Please answer with monthly expected returns and monthly standard deviations: you do not need to annualise the expected returns or standard deviations. Based on conversations with her husband, Grace is considering selling the $100000 of ABC stock and acquiring $100000 of XYZ Company common stock instead. XYZ stock has the same expected return and standard deviation as ABC stock. Her husband comments, 'It doesn't matter whether you keep all of the ABC stock or replace it with $100000 of XYZ stock.' State whether her husband's comment is correct or incorrect and why. No. It depends on what the correlation between returns of ABC,XYZ, and the original portfolio are. Yes. This is correct. When placing all our money/wealth in an investment what matters is the total risk of the portfolio, i.e. standard deviation or variance. Since the standard deviations are the same, we are indifferent. No. The husband's comment is ignoring losses due to transaction costs of selling ABC to buy XYZ. In a recent discussion with her financial advisor, Grace commented, 'If I just don't lose money in my portfolio, I will be satisfied.' She went on to say, 'I am more afraid of losing money than I am concerned about achieving high returns.' Describe one weakness of using standard deviation of returns as a risk measure for Grace. Standard deviation does not measure the total risk of the portfolio. If returns are not symmetric, standard deviation does not reflect differences in positive and negative price movements. Standard deviation does not measure the risk of the individual asset