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You have already invested $2000 in stock A, with Return of A= 20% and stdev of A=18%. However, to benefit from diversification effect you are also considering investing another $2000 in either Stock B (Return of B =12% and stdev of B = 15% correlation coefficient of portfolio of Stocks A and B is -0.5) or Stock C (Return of C = 14% and stdev of C =16% and correlation coefficient of portfolio of Stocks A and C is 0.4) You can invest only in one of those two stocks. Which stock B or C do you choose?

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Financial Management, Finance

Category:- Financial Management
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