The expected return on David Lee Electronics Co is 18% and its standard deviation is 30%. The expected return on Bill Smith Chemical Co is 6% and its standard deviation is 12%.

a. Suppose that the correlation coefficient for the two stocks returns is -0.35. What are the expected return and standard deviation of a portfolio with 45% invested in David Lee and the rest in the Bill Smith?

b. If the correlation coefficient is 0.65, recalculate the portfolio expected return and the standard deviation, assuming the portfolio weights are unchanged.

c. Explain the difference between your answers above.