Mr Santosh Shah, the finance manager of Sauravia Plc, is considering a portfolio of two investment opportunities. The investment opportunities have the following potential outcomes.

Investment A

Return: Best outcome 5%, most likely outcome 15%, worst outcome 25%

Probability: Best outcome 0,2 most likely outcome 0,6 worst outcome 0,2

Investment B

Return: Best outcome 7%, most likely outcome 14%, 21% worst outcome

Probability: Best outcome 0,2 most likely outcome 0,6 worst outcome 0,2

Mr Shah is curious about the impact of correlation on the risk of the portfolio Mr Shah plans to invest 40% in Company and 60% in company B. He has given you the data above and asked you to show, with calculations, the effect of the following on the portfolio's risk.

a) Perfect positive correlation

b) Perfect negative correlation