In which of the following situations would you get the largest reduction in risk by spreading your investment across two stocks? A. When the two shares are perfectly correlated. B. When there is no correlation. C. When the correlation coefficient is -0.5. D. When there is perfect negative correlation.

Show how to construct the portfolio with the lowest possible variance, assuming the correlation between the two asset X and Y is the one you selected above. Also suppose that () = 10%, ( ) = 19%, = 30%, = 20%