Problem 9-21 Diversifying (LG4, LG5)

Consider the characteristics of the following three stocks: Expected Return Standard Deviation Thumb Devices 13 % 23 % Air Comfort 10 19 Sport Garb 10 17 The correlation between Thumb Devices and Air Comfort is ?0.12. The correlation between Thumb Devices and Sport Garb is ?0.21. The correlation between Air Comfort and Sport Garb is 0.77.

Select only two stocks for your portfolio based on low correlation and low risk.

A. Sport Garb and Thumb Devices

B. Air Comfort and Sport Garb

C. Thumb Devices and Air Comfort References