16. Patrick currently holds the following portfolio. The composition of the portfolio and the characteristics of stocks included in the portfolio are as shown below.

w: weights; E(r): expected return; stdev: expected standard deviation; corr: the correlation coefficient between the returns of the two stocks in the portfolio.

Stocks	w	E(r)	stdev	corr
X	0.7	0.25	0.35	0.5
Y	0.3	0.15	0.25

Patrick is considering replacing Stock Y with Stock Z. Stock Z has the same expected return and standard deviation as Stock Y, but it has a higher correlation with Stock X.

How will the expected performance of Patricks portfolio change if he replaces Stock Y with Stock Z (after the replacement, Xs weight is still 0.7 and Zs weight is 0.3).

Group of answer choices

(A) Both the expected return and standard deviation of the new portfolio will be the same as before.

(B) The expected return of the new portfolio will be the same as before, but the expected standard deviation will be lower.

(C) The expected return of the new portfolio will be the same as before, but the expected standard deviation will be higher.

(D) Both the expected return and standard deviation of the new portfolio will be lower than before.

(E) Both the expected return and standard deviation of the new portfolio will be higher than before.

(F) Cannot tell. Not enough information.