You have £10,000 and are offered two investment products by a fund manager. The first product is a portfolio that consists of £6,000 worth of risk free treasury bills and £4,000 worth of QW plc shares. The second product is a portfolio that consists of £1,000 worth of QW plc shares and £9,000 worth of CX plc shares. The following information is available:
Return on treasury bills 4% per annum
(0.04 p.a.)
Expected rate of return on QW plc shares 15% per annum
(0.15 p.a.)
Standard deviation of QW plc shares 0.35
Expected rate of return on CX plc shares 7.7% per annum
(0.077 p.a.)
Standard deviation of CX plc shares 0.15
Correlation coefficient between QW and CX shares 0.40
Which one of these investment portfolios would you choose and why?