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Consider the following returns: a. What is the volatility of Stock 1 returns? b. What is the volatility of Stock 2 returns? c. What is

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Consider the following returns: a. What is the volatility of Stock 1 returns? b. What is the volatility of Stock 2 returns? c. What is the volatility of Stock 3 returns? Reflect on the volatility of each stock for a moment. Then answer the following: d. What is the volatility on a portfolio that is made up of equal investments in Stock 1 and Stock 3 ? e. Suppose we add an equal investment in Stock 3 to the portfolio in question d. What is the volatility on a portfolio that is made up of equal investments in Stock 1 , Stock 2 , and Stock 3 ? Compare (and reflect on) your answers to questions d and e. Why did the volatility of this portfolio go up/down? f. What is the correlation between Stock 1 and Stock 3 retums? g. What is the correlation between Stock 2 and Stock 3 retums

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