You want to invest in two stocks that will provide you with the most diversified portfolio. You should select the two stocks with which one of these correlation values? 0. 03 1. 68 2. -0.34 3. -0.01
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Step 1: Recall what correlation measures — it ranges from -1 to +1, where +1 = perfect positive correlation, 0 = no linear relationship, and -1 = perfect negative correlation. Show more…
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The data in the accompanying table represent the annual rates of return for various stocks. If you only wish to invest in two stocks, which two would you select if your goal is to have low correlation between the two investments? Which two would you select if your goal is to have one stock go up when the other goes down? Click the icon to view the table of annual rates of returns. If your goal is to have low correlation between the two investments, which two should stocks should you select? A. Stock B and Stock C B. Stock A and Stock B C. Stock A and Stock C If your goal is to have one stock go up when the other goes down, you should select since the linear correlation coefficient for these two stocks is closest to + 1. has the greatest absolute value. is closest to - 1. is closest to 0.
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One basic theory of investing is diversification. The idea is that you want to have a basket of stocks that do not all "move in the same direction" In other words, if one investment goes down, you don't want a second investment in your portfolio that is also likely to go down. One hallmark of a good portfolio is a low correlation between investments. The following data represent the annual rates of return for various stocks. If you only wish to invest in two of the stocks, which two would you select if your goal is to have low correlation between the two investments?Which two would you select if your goal is to have one stock go up when the other goes down? CAN'T COPY THE TABLE
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2. A portfolio is comprised of equal weight of two stocks labeled stock X and stock Y the covariance between stock X and stock Y is 0.125 This standard deviation of stock X Is .50 and the standard deviation of stock Y Is .50 which of the following comes closest to the correlation coefficient between stock X and stock Y?1. $1.002. $0.003. $.404. $.505. $.25
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