Data Case

In this question, we examine whether stocks' average returns are related to their volatility, using the historical

prices of the following stocks $($Inside the parenthesis are stock symbols$).$

Tesla, Inc. $($TSLA$)$

Southwest Arline Co$.($LUV$)$

Salesforce, Inc. $($CRM$)$

You may obtain historical prices from Yahoo Finance as follows:

Type in each stock symbol and click "Historical Data".

For the time period, enter January $1,2016$ as "Start Date" and January $1,2024$ as "End Date"."

Choose the "Monthly" frequency.

After hitting Apply click "Download Data".

Open the downloaded data in Excel. Delete all the columns except the date and the adjusted close

$($Among different price quotes, we use "adjusted$-$close price" to compute returns$).$

Next, using the adjusted close prices, we calculate stock returns for each month. Specifically, given prices $P_t$

in month $t$ and $P_{t-1}$ in month $t-1,$ the rate of return is

$R_t=\frac{P_t}{P_{t-1}}-1$

$($a$)$ Calculate the average returns on these three stocks and report in the following table.

$($b$)$ Calculate the standard deviation of these three stocks and report in the following table.

$($c$)$ Using the statistics found in $($a$)$ and $($b$),$ draw a scatter plot, where $x$ variables are the standard

deviation, and $Y$ variables are the average return.

Hint $1.$ In this graph, you will see $3$ dots in a simple version of the figure on Module $10,$ page $26,$

without the straight line.

Hint $2.$ To draw a scatter plot, please select the cells containing the standard deviation and average

and click Insert $>$ Charts $>$ Scatter.

Hint $3.$ Make sure that standard deviation is on $x$ axis and average return in on $Y$ axis.

$($d$)$ Do you see a clear relationship between average return and standard deviation? How would you interpret

this result?

PLEASE ALSO COMPLETE THE TABLES ON QUESTIONS A AND B$.$ THANK YOU!