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Bob Conrad's investment portfolio consists of several types of stocks, bonds, and money market instruments. The portfolio has an overall standard deviation of 12%, a beta of 1.06, and a total return for the year of 11%. Bob is considering adding one of two alternative investments to his portfolio. Stock A has a standard deviation of 13% , a beta of 0.87 , and a correlation coefficient with the portfolio of 0.6. Stock B has a standard deviation of 11%, a beta of 0.97, and a correlation coefficient of 0.95. Which stock should Bob consider adding to his portfolio, and why?

a) Stock A because it has a lower correlation coefficient

b) Stock A because it has a lower beta than that of the portfolio

c) Stock B because it has a lower standard deviation than that of the portfolio

d) Stock B because it has a higher correlation coefficient

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Financial Management, Finance

Category:- Financial Management
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