Problem:
Stocks J, K, and L all have the same expected rate of return and standard deviation. The correlation coefficients between each pair of these stocks are as follows:
|
Stocks
|
J
|
K
|
L
|
|
J
|
|
0.8
|
0.2
|
|
K
|
|
|
-0.5
|
|
L
|
|
|
|
Given these correlation coefficients, which pairs of stocks should be combined together to form a minimum variance portfolio? Explain your choice.