Mr. Smith has a portfolio of investment with diverse stocks. This portfolio has an expected

return of 18%, but a standard deviation of 30%. Mr Smith is considering adding a stock. He

hesitates between one of the two stocks in the following table:

Expected Return

Stock A - 15%

Stock B - 15%

Standard Deviation

Stock A - 25%

Stock B - 20%

Correlation with His Portfolio's Returns

Stock A - 0.2

Stock B - 0.6

If after adding the stock he will have 20% of his money in the new stock and 80% of his

money in his existing portfolio, which one should he add?