The MSCI world stock market index in Exhibit 19.2 had a mean annual return of 6.6 percent and a standard deviation of 29.9 percent. Meanwhile, dollar returns to 10-year U.S. treasuries had a mean return of 2.3 and a standard deviation of 6.6 percent. The correlation between these two indices was –0.24. Calculate the mean and standard deviation of an equal-weighted portfolio of global stocks and U.S. 10-year T-bonds. Also, calculate the Sharpe index for this stock–bond portfolio using the historical 1.5 percent mean return on U.S. T-bills.

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EXHIBIT 19.2 Performance of National Stock Market Indices (2000-2014) in U.S. Dollars Sharpe Correlation coefficients Index (%) (%) index Beta CA CH GE IN JA UK US W Canada 11.0 28.1 0.34 1.11 China 18.0 42.1 0.39 1.18 0.72 Germany 9.1 31.1 0.24 1.47 0.76 0.65 India 7.5 30.8 0 20 129 0.70 0.67 0.64 Japan UK US World US T-bills 1.5 3.5 20.0 7.2 23.5 0.24 6.6 19.6 0.26 6.6 20.9 0.24 1.7 0.10 0.70 0.60 0.51 0.56 0.56 1.00 0.82 0.66 0.87 0.63 0.61 0.93 0.81 0.63 0.88 0.62 0.57 0.85 1.00 0.86 0.69 0.93 0.68 0.68 0.93 0.97 0.00 0.00 0.05 0.14 0.04 0.08 0.00 0.03 -0.05 0.00