Consider the characteristics of the following three stocks:
Expected Return Standard Deviation
Thumb Services 13% 23%
Air Comfort 10% 19%
Sport Garb 10% 17%
The correlation between Thumb Devices and Air Comfort is- 0.12. The correlation between Thumb Devices and Sport Garb is 0.0. 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?
Combine Thumb Devices and Sport Garb because there is zero correlation.
Combine Thumb Devices and Air Comfort because they are negatively correlated.
Combine Air Comfort and Sport Garb due to negative correlation.