Chapter 06 - HW 5. Problem 6-03 The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period. Month 1 Madison Cookies Sophie Electric -0.04 0.07 0.05 -0.02 2 3 -0.06 -0.11 4 0.15 0.18 5 -0.02 -0.04 6 0.07 0.01 Compute the following. Do not round intermediate calculations. Round your answers to four decimal places. a. Average monthly rate of return R for each stock. Madison Cookies: 0.025 Sophie Electric: 0.015 b. Standard deviation of returns for each stock. Madison Cookies: 0.0797 Sophie Electric: 0.10015 c. Covariance between the rates of return. 0.0058 d. The correlation coefficient between the rates of return. 0.7266 Would these two stocks be good choices for diversification? Why or why not? Madison Cookies and Sophie Electric are bad choices for diversification as these assets have high positive correlation