Assume you have N stocks ²=16. Correlations between each pair of stocks is rho = 0.125 = 1/8

a. what would be pairwise covariances?

b. what would be the variance of an equally weighted portfolio of N stocks?

c. Using excel calculate the variance you found in the portfolio in part b for N=1,2,3...30 stocks and plot it

d. Find the percentage of the total portfolio variance coming from pairwise covariances and plot as a function of N for N=1,2,3...30