Consider the Characteristics of the Following Three Stocks: the Correlation

question 24

Multiple Choice

Consider the characteristics of the following three stocks: The correlation between Thumb Devices and Air Comfort is −0.12.The correlation between Thumb Devices and Sport Garb is 0.89.The correlation between Air Comfort and Sport Garb is −0.85.If you can pick only two stocks for your portfolio,which would you pick? Why?

• A) Combine Thumb Devices and Sport Garb because they have a high correlation.
• B) Combine Thumb Devices and Air Comfort because of high standard deviations.
• C) Combine Air Comfort and Sport Garb due to negative correlation.
• D) Combine Thumb Devices and Sport Garb because Thumb Devices has the highest return and Sport Garb has the lowest standard deviation.

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