Question: Observe returns on stocks A and B on three dates: Returns Date Stock A Stock B 1 3% 4% 2 4% 6% 3 1% 3%

Observe returns on stocks A and B on three dates:

Returns

Date Stock A Stock B

1 3% 4%

2 4% 6%

3 1% 3%

What is the standard deviation of the individual stock returns? What is the covariance? What is the correlation?

Form a portfolio that is 30% invested in stock A and 70% invested in stock B. What are the portfolio returns on dates 1, 2, and 3? What is the mean return and the return standard deviation of the portfoli

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