Your friend holds a portfolio including two stokcs, A and B, with equal amounts of money invested in each. The volatility of A share prices is the same as the volatility of B share prices. They have a perfectly positive correlation.
1. The overall volatility of the portfolio is:
A) Less than individual volatility of stock A or B
B) More than individual volatility of Stock A or B
C) The same as individual volatility of Stock A or B
D) More information needed.
2. Instead of investing her money equal in each stock, your friend invests 70% of her money in stock A and 30% of her money in stock B. Now the overall volatility of the portfolio is:
A) Increased
B) Decreased
C) Unchanged
D) More information needed.