The correlation coefficients between pairs of stocks is as follows: Corr (A, B) = .85; Corr (A,

Question:

The correlation coefficients between pairs of stocks is as follows:

Corr (A, B) = .85; Corr (A, C) = .60; Corr (A, D) =.45

Each stock has an expected return of 8 percent and a standard deviation of 20 percent. If you’re entire portfolio now comprises stock A and you can add only one more, which of the following would you choose, and why?

a. B

b. C

c. D

d. Need more data

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...