The stocks in Example 7.9 are all positively correlated. What happens when they are negatively correlated? Answer for each of the following scenarios. In each case, two of the three correlations are...

The stocks in Example 7.9 are all positively correlated. What happens when they are negatively correlated? Answer for each of the following scenarios. In each case, two of the three correlations are the negatives of their original values. Discuss the differences between the optimal portfolios in these three scenarios.

a.  Change the signs of the correlations between stocks 1 and 2 and between stocks 1 and 3. (Here, stock 1 tends to go in a different direction from stocks 2 and 3.)


b.  Change the signs of the correlations between stocks 1 and 2 and between stocks 2 and 3. (Here, stock 2 tends to go in a different direction from stocks 1 and 3.)


c.  Change the signs of the correlations between stocks 1 and 3 and between stocks 2 and 3. (Here, stock 3 tends to go in a different direction from stocks 1 and 2.)

Example 7.9