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  3. the following data relates to the returns of three

The following data relates to the returns of three stocks. Mean return Std deviation...

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Accounting

The following data relates to the returns of three stocks.

Mean return Std deviation of returns

A: 0.05 0.093

B: 0.35 0.070

C: 0.045 0.085

The pairwise correlation coefficients between the returns of these three stocks are:

A and B = .137, A and C = .476, B and C = .422

Compute the returns and variances of equally weighted portfolios of the following stocks.

(a) A and B

(b) A, B and C

Show your workings. Comment on the results you got for (a) and (b) from the standpoint of risk diversification.

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