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Statistics for three stocks, A, B and C, are shown in the following tables: Standard Deviation of Returns Stock A B C Standard Deviation (%)

Statistics for three stocks, A, B and C, are shown in the following tables:

Standard Deviation of Returns

Stock

A

B

C

Standard Deviation (%)

40

20

40

Correlations of Returns

Stock

A

B

C

A B C

1 0 0

0.90 1 0

0.50 0.10 1.00

Only on the basis of the information provided in the tables, and given a choice between a portfolio made up of equal amounts of stocks A and B or a portfolio made up of equal amounts of stocks B and C, which portfolio would you recommend? Show calculation and Justify your choice.

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