One basic theory of investing is diversification. The idea...

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 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? $$\begin{array}{lcccccc} \hline & \multicolumn{5}{c} {\text { Rate of Return }} \\ \)\cline { 2 - 5 }\( \text { Year } & \text { Cisco Systems } & \text { Walt Disney } & \text { General Electric } & \text { Exxon Mobil } & \text { TECO Energy } & \text { Dell } \\ \hline 1999 & 1.31 & -0.015 & 0.574 & 0.151 & -0.303 & -0.319 \\ \hline 2000 & -0.286 & -0.004 & -0.055 & 0.127 & 0.849 & -0.661 \\ \hline 2001 & -0.527 & -0.277 & -0.151 & -0.066 & -0.150 & 0.553 \\ \hline 2002 & -0.277 & -0.203 & -0.377 & -0.089 & -0.369 & -0.031 \\ \hline 2003 & 0.850 & 0.444 & 0.308 & 0.206 & 0.004 & 0.254 \\ \hline 2004 & -0.203 & 0.202 & 0.207 & 0.281 & 0.128 & 0.234 \\ 2005 & 0.029 & -0.129 & -0.014 & 0.118 & 0.170 & -0.288 \\ 2006 & 0.434 & 0.443 & 0.093 & 0.391 & 0.051 & -0.164 \\ ^{2007} & 0.044 & -0.043 & 0.126 & 0.243 & 0.058 & -0.033 \\ ^{2008} & -0.396 & -0.306 & -0.593 & -0.193 & -0.355 & -0.580 \\ ^{2009} & 0.459 & 0.417 & -0.102 & -0.171 & 0.249 & 0.393 \\ ^{2010} & -0.185 & 0.155 & 0.053 & 0.023 & 0.044 & -0.323 \\ \hline \text { source Yahootfinance } & & & & & \end{array}$$

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 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?
$$\begin{array}{lcccccc}
\hline & \multicolumn{5}{c} {\text { Rate of Return }} \\
\)\cline { 2 - 5 }\( \text { Year } & \text { Cisco Systems } & \text { Walt Disney } & \text { General Electric } & \text { Exxon Mobil } & \text { TECO Energy } & \text { Dell } \\
\hline 1999 & 1.31 & -0.015 & 0.574 & 0.151 & -0.303 & -0.319 \\
\hline 2000 & -0.286 & -0.004 & -0.055 & 0.127 & 0.849 & -0.661 \\
\hline 2001 & -0.527 & -0.277 & -0.151 & -0.066 & -0.150 & 0.553 \\
\hline 2002 & -0.277 & -0.203 & -0.377 & -0.089 & -0.369 & -0.031 \\
\hline 2003 & 0.850 & 0.444 & 0.308 & 0.206 & 0.004 & 0.254 \\
\hline 2004 & -0.203 & 0.202 & 0.207 & 0.281 & 0.128 & 0.234 \\
2005 & 0.029 & -0.129 & -0.014 & 0.118 & 0.170 & -0.288 \\
2006 & 0.434 & 0.443 & 0.093 & 0.391 & 0.051 & -0.164 \\
^{2007} & 0.044 & -0.043 & 0.126 & 0.243 & 0.058 & -0.033 \\
^{2008} & -0.396 & -0.306 & -0.593 & -0.193 & -0.355 & -0.580 \\
^{2009} & 0.459 & 0.417 & -0.102 & -0.171 & 0.249 & 0.393 \\
^{2010} & -0.185 & 0.155 & 0.053 & 0.023 & 0.044 & -0.323 \\
\hline \text { source Yahootfinance } & & & & &
\end{array}$$

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