Suppose John wishes to change the weights of Stock X and Y in his portfolio, each stock from 0% to 100%. Jane also wants to change the weights of Stock Y and Z in her portfolio, each from 0% to 100%. Stock X Stock Y Stock Z Expected Return 0.06 0.18 0.12 Standard Deviation 0.10 0.30 0.20 Covariance between X and Y -0.025 Covariance between Y and Z 0.054

Compute the correlation coefficients for John's and Jane's portfolios.

Which person has a greater chance to achieve greater risk diversification? Why?

Draw the rough paths of John and Janes portfolios on the following picture. You don't need to download the file, but draw a similar figure on a piece of paper or on a compatible program.