I.An investor is considering investing an equally weighed portfolio of two (2) stocks namely X and Y. You have been given the following information about these two stocks in terms of risk, return and correlation, as shown below:

Stock

X

Y

E(R)

10%

8%

Sigma :

20%

15%

Correlation between A and B

-0.25

Based on the given information, you are required to:

1.Calculate the portfolio return.

2.Calculate the portfolio risk.

3.Compare portfolio risk with the individual stock risks and identify the benefit of the diversification of the portfolio.