Consider the following assets:

Scenario Bad Okay Good Market M −5% 5% 15%

Asset X −2% −3% 25%

Asset Y −4% −6% 30%

(a) Compute the market betas for assets X and Y.

(b) Compute the correlations of assets X and Y with M.

(c) Assume you were holding only M. You now are selling off 10% of your M portfolio to replace it with 10% of either X or Y.Would an MX portfolio or an MY portfolio be riskier?

(d) Is the correlation indicative of which of these two portfolios ended up riskier? Is the market beta indicative?