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7. Using historical data to measure portfolio risk and correlation coefficient Aa Aa George is an investor who believes that past variability of stocks is a reasonably good estimate of future risk associated with the stocks. George works on creating a new portfolio and has already purchased stock A. Now he considers two other stocks, B and C. George collected data on the historic rates of return for all three stocks, which are presented in the following table. Complete the table by calculating standard deviations for each stock: Year 2009 2010 2011 2012 Stock A 30% 25% Stock B 25% 30% -10% 5% Stock C 10% 5% 30% 25% 10% Average return Standard deviation Coefficient of variation Suppose George can only afford to complement stock A by adding just one of the two other stocks, either stock B or stock C. Complete the following table by computing correlation coefficients between stocks A and B and between stocks A and C, and calculate average returns and standard deviation for the two potential portfolios, AB and AC: Stocks A and B Stocks A and C Correlation coefficient Average returrn Standard deviation Suppose George has to choose between two portfolios, AB and AC. George will be better off choosing Which of the following statements about portfolio diversifications are correct? Check all that apply. The risk of a portfolio increases as the number of stocks in the portfolio increases The lower the stocks, correlation coefficients, the lower the portfolio's risk Risk can be completely eliminated by adding a sufficient number of partially correlated stocks It is impossible to form completely riskless stock portfolios