The analysis of outcomes for sales and the associated rate of return on common stocks for companies X and Y are shown below. You intend to form a portfolio by allocating $3750 of your total wealth of $5000 in company X, and the remainder in company Y. The covariance between the two companies is -0.000927. Show all work to receive credit.

DECLINING	FLAT	RISING
probability	40%	25%	35%
% of return X	-0.4%	10.8%	21.7%
% of return Y	5.2%	18.3%	23.5%

1. What is the expected return and standard deviation for common stock in each company?

2. What is the portfolio return and standard deviation for this two stock portfolio? Explain in words how and why portfolio variance is different than the individual standard deviation of the stocks?