Diversification is considered important in finance because it allows investors to reduce risk by investing in a variety of assets. It is especially effective when the correlation between the assets is low. Consider the accompanying table, which shows a portion of monthly data on closing stock prices of four companies in 2010. The entire data can be found on the text website, labeled 2010 Stock Returns.

Month	Microsoft	Coca Cola	Bank of America	General Electric
Jan	27.61	49.52	15.13	15.64
Feb	28.22	54.88	16.61	15.72
Mar	28.83	57.84	17.81	17.81
Apr	30.06	54.31	17.79	18.46
May	25.51	49.29	15.7	16
Jun	22.75	47.47	14.35	14.2
Jul	25.52	51.11	14.02	15.88
Aug	23.33	49.5	12.44	14.26
Sep	24.34	52.69	13.09	16.12
Oct	26.51	53.08	11.44	15.89
Nov	25.26	58.5	10.94	15.71
Dec	27.91	55.58	13.34	18.29

1. Compute the correlation coefficients between all pairs of stock prices.
2. Suppose an investor already has a stake in Microsoft and would like to add another asset to her portfolio. Which of the remaining three assets will give her the maximum benefit of diversification? (Hint: Find the asset with the lowest correlation with Microsoft.)
3. Suppose an investor does not owe any of the above four stocks. Pick two stocks so that she gets the maximum benefit of diversification.