Suppose there are 3 stocks with the same expected return of 10% per year and the same risk (standard deviation) of 50%. The correlation between any 2 of them is 0.5.
1) What is the risk of equal-weighted portfolio of 3 stocks? (i.e. w1 = w2 = w3 = 1 3 2)
2) Do you see any diversification effect in a?