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A firm is currently selling three products A,B and C with identical demand distribution (i.e., all three products have the same mean and the same standard deviation). The pairwise demand correlation between the products are as follows:
Demand correlation between products: A&B = -0.5; A&C = 0; B&C = +0.35.
The firm is considering designing a generic product that would replace two of the products (the demand for the generic product is therefore the sum of the demands for the two replaced products). The company will have the lowest coefficient of variation for the forecast of the generic product...
a) By replacing products A and B by the generic product.
b) By replacing products A and C by the generic product.
c) By replacing products B and C by the generic product.
d) Coefficient of variation does not depend on underlying correlation
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