The table below is the Monthly return Correlation Coefficientsbetween two stocks:
| RIO & ANZ | 0.6162 |
| RIO & WES | 0.7593 |
| RIO & TLS | -0.6850 |
| ANZ & WES | 0.5970 |
| ANZ & TLS | -0.1865 |
| WES & TLS | -0.5192 |
Required:
a. Which pair of two stocks have the highest and lowestcorrelations?
b. Suggest some economic reasons to explain the high and lowcorrelation between these stocks. If you were to form a portfolioof two stocks, which ones would you choose to maximise the benefitsof diversification? Give reasons for your answer.
