The following are the estimated volatilities and correlations of seven U.S. publicly traded stocks:

		Microsoft	Dell	Delta Air	AA	GM	Ford	Anheuser
	Std.Dev	42%	54%	50%	72%	33%	37%	18%
		Correlations:
Microsoft	42%	1	65%	27%	19%	22%	6%	-7%
Dell	54%	65%	1	19%	18%	32%	32%	10%
Delta Air	50%	27%	19%	1	69%	31%	38%	19%
AA	72%	19%	18%	69%	1	35%	58%	11%
GM	33%	22%	32%	31%	35%	1	64%	11%
Ford	37%	6%	32%	38%	58%	64%	1	10%
Anheuser	18%	-7%	10%	19%	11%	11%	10%	1

Computational questions. 

What is the variance of Dell?

What is the covariance between Microsoft and AA

What is the covariance between Anheuser and Microsoft?

You are construct a equal-weighted portfolio comprised of Dell, Delta Air, AA and GM, what is the weight for each stock in your portfolio?

What is the volatility of the equal-weighted portfolio comprised of Dell, Delta Air, AA and GM?

What is the volatility of the equal-weighed portfolio comprised of Delta Air, AA, GM, Ford and Anheuser?

What is the volatility of the equal-weighted portfolio comprised of all the seven stocks?

From this example, you can see that in general as you diversify your portfolio with more stocks, the volatility of your portfolio_____, thus _____ the portfolio risk.

increases, raising

decreases, raising

increases, reducing

decreases, reducing