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Question 285  covariance, portfolio risk

Two risky stocks A and B comprise an equal-weighted portfolio. The correlation between the stocks' returns is 70%.

If the variance of stock A increases but the:

  • Prices and expected returns of each stock stays the same,
  • Variance of stock B's returns stays the same,
  • Correlation of returns between the stocks stays the same.

Which of the following statements is NOT correct?




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