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How would you characterize the correlation of returns of the assets L and M? Discuss any benefits of diversification achieved through creation of the portfolio.

  1. How would you characterize the correlation of returns of the assets L and M?
  2. Discuss any benefits of diversification achieved through creation of the portfolio.
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Year Projected Return (%) Asset L Asset M 2018 14 2019 14 2020 16 2021 17 2022 17 2023 19 Weight of L (0.40L) Weight of M (60m) Portfolio Return 20 5.6 12 17.6 18 5.6 10.8 16.4 16 6.4 9.6 16 14 6.8 8.4 15.2 12 6.8 7.2 14 10 7.6 6 13.6 Average Portfolio Return 15.4666667 Standard Deviation 1.51084965

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