Quantitative Methods Q177

0. Arvind Roy currently has two stocks in his portfolio. 30% is invested in Gala Cement and the remainder is invested in Aqua Fertilizer. The two stocks have been performing quite well over the years with expected returns and standard deviations as follows:
Company Expected Return Standard Deviation
Gala Cement 10% 8%
Aqua Fertilizer 17% 20%

The covariance between these two stocks is 0.005. Arvind is considering adding another stock, Teragon Foods. Teragon Foods has a correlation coefficient of 0.4 with the current portfolio. Which of the following statements is least accurate?

Answer
Comment
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Option : B
Explanation : Systematic risk cannot be reduced.

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