Assume that you have three stocks J, K, and L with different expected returns and standard deviations. Use a standard deviation/expected return space to answer the following questions

1. Sketch on the diagram how portfolios combining only stocks J and L would plot if the two stocks are not perfectly correlated. Explain and justify.

2. Sketch on the diagram how portfolios combining only stocks K and L would plot if the two stocks are negatively perfectly correlated. Explain and justify.

3. Would you ever prefer a portfolio that combines K and L over a portfolio that combines J and L? Explain.

Answer in 20 minutes max