It’s often argued that diversification benefits are hard to materialise. Evaluate this statement and explain your opinion.

1.You are considering creating a portfolio of two stocks. However, you’re unsure that which mixof these two stocks may optimise your risk and return. Analysis of historical prices andeconomic data projects following information about these stocks:

2.Using this information calculate: 10 Marksa.Standard deviation of Stock A. 5 Marksb.Standard deviation of Stock B. 5 Marks3.The risk estimates suggest that the two assets have a covariance of 0.002433 and correlationless than 1. However, to visualise the effect of diversification you have decided to create hypothetical portfolios of following weights: weightsPortfolio ABExpected ReturnVarianceStandardDeviation0.40.67Probability Stock A returnStock B returnSlow0.16%-20%Normal0.67%13%Growth0.311%33%

0.50.50.60.

4Calculate and critically evaluate:a.Expected return of the portfolio for each combination. 3 Marksb.Variance and standard deviation for each combination. 7 Marks4.It’s often argued that diversification benefits are hard to materialise. Evaluate this statement and explain your opinion.