An Australian investor that pursues international diversification is considering investing in the following international mutual funds:

Fund	Expected return	Standard deviation
English Equities	13.2%	25%
American Equities	10%	20%

The investor wants to create a two-asset portfolio of funds with the following weights:

-Portfolio A: 75 per cent English, 25 per cent American

-Portfolio B: 25 per cent English, 75 per cent American

-Portfolio C: 50 per cent English, 50 per cent American

QUESTIONS

1) The correlation between the two funds is 0.64. What is the expected return and risk (standard deviation) of the three portfolios?

2) Which one of the three portfolios is the best? On what criteria do you base your choice?