Problem:
Based on what you know about risk, determine which is the riskier investment.
Company A has an expected rate of return of 15% and a standard deviation of 3%
Company B has an expected rate of return of 10% and a standard deviation of 2%
Company C has an expected rate of return of 25% and a standard deviation of 5%
If the correlation coefficient, p is equal to +1.0, perfectly positively correlated, has diversification worked? Yes or No Is this a risky portfolio? Yes or No
If the correlation coefficient, A is equal to -1.0, perfectly negatively correlated, has diversification worked? Yes or No Is this a risky portfolio? Yes or No