2. How do you create a diversified stock portfolio? Your task is to use diversification techniques to construct a portfolio of TWO stocks. This can be done using your required return estimates from Question 1(a). The risk-free rate is 0.0170. The S&P500 index return is 0.0670 while its volatility is 0.12. The following is the covariance matrix of the selected three stocks. Covariance matrix Apple, Inc. Bank of America Corp. Walmart, Inc. Apple, Inc. 0.0480 0.0230 0.0128 Bank of America Corp. 0.0230 0.0617 0.0089 Walmart, Inc. 0.0128 0.0089 0.0085 a. Using the above covariance matrix, compute the correlation coefficients between the stock returns. [10 marks] b. Select two stocks to form a portfolio. Justify your choice. [10 marks] c. What weights would you place on the selected stocks in order to construct an optimal risky portfolio? [10 marks] d. What is the risk and return of your optimal risky portfolio? Calculate the Sharpe ratio for your portfolio and compare it to the S&P 500 index. Evaluate your portfolio performance according to the Sharpe ratio. [Word Limit: 200 words] [20 marks] The required return estimates from Question 1(a): Apple Inc = 0.0927 Bank of America Corp = 0.0697 Walmart Inc = 0.0464