Year Stock A return Stock B return 2004 (24.25%) 5.5% 2005 18.5% 26.73% 2006 38.67% 48.25% 2007 14.33% (4.5%) 2008 39.13% 43.86% Looking at the annual returns on the two stocks, would you guess that...

Looking at the annual returns on the two stocks, would you guess that the correlation coefficient between the two stocks is closer to +0.8 or to –0.8?

If more randomly selected stocks had been included in the portfolio, which of the following is the most accurate statement of what would have happened to p?

1.p would have remained constant.

2.p would have been in the vicinity of 20%.

3.p would have declined to zero if enough stocks had been included.