Suppose that a stock portfolio and a bond portfolio have a correlation of 0.5. Which of the following must be true?

I) When stock price increases, bond price must increase.

II) It is possible to achieve diversification by combining the stock and bond portfolios.

III) A zero variance portfolio can be formed by combining the stock and bond portfolios.

A. I only B. II only C. I and II only D. I and III only E. I, II and III

Please explain. Thank you!