Mr. Thomson is considering investing in all the companies. However, he is concerned
that Equifax experienced major cyber breach in 2017. He believes it’s best to hold a
portfolio comprising investment in ‘Koppers’ and ‘Adtran’ only. Compute his portfolio
standard deviation if invest in all three companies equally. Comment on what advise you
will give Mr. Thomson from diversification context given his concern. 

To compute Mr. Thomson's portfolio standard deviation if he invests equally in Koppers, Adtran, and Equifax, we need the following dataTo compute Mr. Thomson's portfolio standard deviation if he invests equally in Koppers, Adtran, and Equifax, we need the following 

1. **Standard deviation (risk)** of each company’s stock returns.
2. **Correlation coefficients** between each pair of companies' returns.

The general formula for the standard deviation of a portfolio with three assets is:

\[
\sigma_p = \sqrt{w_A^2 \sigma_A^2 + w_B^2 \sigma_B^2 + w_C^2 \sigma_C^2 + 2w_A w_B \rho_{AB} \sigma_A \sigma_B + 2w_A w_C \rho_{AC} \sigma_A \sigma_C + 2w_B w_C \rho_{BC} \sigma_B \sigma_C}
\]

Where:
- \(w_A\), \(w_B\), and \(w_C\) are the weights of the investments in Koppers, Adtran, and Equifax respectively (in this case, each weight \(w_A = w_B = w_C = \frac{1}{3}\) since the investment is equally distributed).
- \(\sigma

Mr. Thomson is considering investing in all the companies. However, he is concerned that Equifax experienced a major cyber breach in 2017. He believes it’s best to hold a portfolio comprising investment in ‘Koppers’ and ‘Adtran’ only. Compute his portfolio standard deviation if he invests in all three companies equally. Comment on what advice you would give Mr. Thomson from a diversification context given his concern.

Learn how to calculate the portfolio standard deviation when investing equally in Koppers, Adtran, and Equifax. This guide explains the key concepts of portfolio theory, including the standard deviation formula and correlation coefficients, and provides diversification advice for investors concerned about company-specific risks.

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