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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