An effective way to reduce risk without sacrificing expected return is diversification. As a fine dvising your clients to spread their risk across an equity mutual fund with the following infor State of Economy Probability Fund A Fund B 0.6FundA + 0.4FundB Recession 0.2 0.08 -0.15 Normal 0.5 0.15 0.10 Boom 0.3 0.03 0.20 Assume are considering a portfolio that invests 60% and 40% in Fund A and Fund B, respectiv a) What are the portfolio returns in each scenario? What are the expected returns for each fun b) What is the average volatility of the two funds? c) What is the correlation between the two funds? d) Can you reduce the volatility by holding the portfolio, and why? How much risk can you with the average volatility