What You’re Seeing

This tool blends two stocks in different weights (0% → 100% in Stock 1). Each point on the curve is one mix, plotted as (Risk, Return).

Return (Easy Part)

• Expected Return = weighted average of the two stock returns.

Risk (Where Correlation Matters)

Portfolio risk depends on: (1) each stock’s volatility, (2) your weights, and (3) correlation. Change ρ12 and watch the curve move.

• ρ12 = +1 → stocks move together → least diversification benefit.
• ρ12 = 0 → some independence → more risk reduction.
• ρ12 < 0 → opposite movement → strongest risk reduction (curve shifts left).

Student rule: For the same return, pick the point with lower risk (further left).