Imagine two portfolios.

Portfolio 1 consists of assets A and B.

• Expected return: 15% for asset A, 20% for asset B
• Risk: 18% for asset A, 15% for asset B
• Correlation between assets A and B is 0.8

Portfolio 2 consists of assets C and D.

• Expected return: 15% for asset C, 20% for asset D
• Risk: 18% for asset C, 15% for asset D
• Correlation between assets C and D is 0.2

Which portfolio is better to invest in?

a.

no difference

b.

not enough information

c.

portfolio 1

d.

portfolio 2