Use the Table for the Question(s) Below -Which of the Following Combinations of Two Stocks Would Give

question 82

Multiple Choice

Use the table for the question(s) below.
Consider the following expected returns, volatilities, and correlations:
$\begin{array}{lccccc}\hline&\text { Expected }&\text {Standard }&\text {Correlation with }&\text {Correlation with }&\text {Correlation with }\\\text { Stock } & \text { Return } & \text { Deviation } & \text { Data\#3 } & \text { Metcash } & \text { Webjet } \\\hline \text { Data\#3 } & 14 \% & 6 \% & 1.0 & -1.0 & 0.0 \\\hline \text { Metcash } & 44 \% & 24 \% & -1.0 & 1.0 & 0.7 \\\hline \text { Webjet } & 23 \% & 14 \% & 0.0 & 0.7 & 1.0\end{array}$
-Which of the following combinations of two stocks would give you the biggest reduction in risk?

• A) Metcash and Data#3
• B) Webjet and Metcash
• C) Data#3 and Webjet
• D) No combination will reduce risk.

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Definitions:

Liabilities

Financial obligations or debts that a company owes to others, which must be paid in the future, including loans, accounts payable, and mortgages.

Shareholders' Equity

The residual interest in the assets of a corporation after subtracting liabilities, representing the ownership interest of shareholders.

Liabilities

Obligations a company owes to external parties, which can include loans, accounts payable, mortgages, and other debts due.