There are two stocks in your portfolio.

Stock Weight E(r) Variance
A 1/3 9% 0.0036
B 2/3 15% 0.0081


  1. Assume stock A and B are perfectly positively correlated, calculate the risk and return for your portfolio.
  2. Repeat (a), assume the correlation is 0. Why is the risk now lower than in (a)?

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