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Stock X has an expected return of 8% and Stock Z has an
expected return of 12%. The standard deviati 1 answer below » Stock X has an expected return of 8% and Stock Z has an
expected return of 12%. The standard deviation of the expected
return is 10% for both stocks. Assume that these are the only two
stocks available in a hypothetical world. A) If the correlation between the returns of the two
stocks is +1: -What is the expected return and standard deviation of a
portfolio containing 50% X and 50% Z? -Does this portfolio offer any benefits of diversification (if
the correlation is +1)? How do you know? -Will any investor include Stock X in his or her portfolio?
Explain why or why not. B) If the View complete question » Stock X has an expected return of 8% and Stock Z has an
expected return of 12%. The standard deviation of the expected
return is 10% for both stocks. Assume that these are the only two
stocks available in a hypothetical world. A) If the correlation between the returns of the two
stocks is +1: -What is the expected return and standard deviation of a
portfolio containing 50% X and 50% Z? -Does this portfolio offer any benefits of diversification (if
the correlation is +1)? How do you know? -Will any investor include Stock X in his or her portfolio?
Explain why or why not. B) If the correlation between the returns of the two
stocks is +0.3: -What is the expected return and standard deviation of a
portfolio containing 50% X and 50% Z? -Does this portfolio offer any benefits of diversification (if
the correlation is +0.3)? How do you know? -Will any investor include Stock X in his or her portfolio (if
the correlation is +0.3)? Explain why or why not. C) Can diversification offer benefits to investors if
the correlation between stocks is positive? View less » Aug 05 2015 10:12 AM
