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An investor has an investment choice to make between three portfolios. The first portfolio (Portfolio 1) which has a risk of 2.50% is an equally weighted portfolio of stock A and stock B. The risk of A and B are 10% and 15% respectively. The second portfolio (Portfolio 2) which has a risk of 10.75% is an equally weighted portfolio or stock C and stock D. The risk of C and D are 12.50% and 17.50% respectively. The third portfolio (Portfolio 3) which has a risk of 15% is an equally weighted portfolio of stock E and stock F, which have the same individual risk as the portfolio. If the investors choice is conditional on the portfolio having the lowest correlation, which portfolio will he choose?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91590589

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