While working on portfolio selection, you have got the following information regarding 2 stocks since your firm is considering a special case of Markowitz portfolio model investment. You need to submit the portfolio selection report to your head analyst covering the expected returns on each stock, their individual risks, comparison of risk between two stocks, portfolio return (equally invested in each stock), and the risk of the portfolio with 2 possible correlation coefficients (covariance) i.e. 0.25 & -0.35. Present the report based on above requirements with proper calculations and analysis.

State of Economy

Probability of State of Economy

Rate of returns if state occurs

Stock L

Stock M

Boom

0.25

0.11

0.33

Normal

0.55

0.07

0.13

Recession

0.20

0.06

-0.20