Stock X shows a possible return distribution of 100%, 50%, 25%, 0%, and 50%, while stock Y has its corresponding distribution of 0%, 10%, 25%, 40%, and 50%, with probability of 1/5 each. You construct a portfolio with 60-40 weights between X and Y (i.e., 60% of your money is invested in Stock X and 40% in Y).

Which is the incorrect statement about the portfolio variance/standard deviation?

A. The variance of the portfolio is computed as: Var (P) = (.6)2Var(X) + (.4)2Var(Y) + 2(.6)(.4)Cov(X,Y).

B. The covariance between X and Y is computed as: Cov(X,Y) = (100-25)(0-25)(.2) + (50-25)(10-25)(.2) + (25-25)(25-25)(.2) + (0-25)(40-25)(.2) + (-50-25)(50-25)(.2).

C. We know for sure that the standard deviation of the portfolio is less than the weighted average of the standard deviations of Stock X and Stock Y unless they are perfectly negatively correlated.

D. Given the information, the correlation coefficient between Stock X and Stock Y is computed to be .976.