5F.10
10. You hold one stock (A) with a standard deviation of 20%. You are thinking about buying another stock (B) with a standard deviation of 30%. You will hold these two stocks in a portfolio, with 50% of your money invested in each. Stock B has a correlation coefficient of –0.2 with stock A. Your friend says that adding a stock with higher standard deviation (B) than stock A will result in a riskier portfolio than just holding A alone. Is he right? That is, will your portfolio of A & B be riskier than just stock A? Why or why not? [6]