Question: Problem 11-19 Diversification (LO3) Here are the returns on two stocks. Digital Cheese Executive Fruit January +15 +7 February 3 +1 March +5 +4 April

Problem 11-19 Diversification (LO3)

Here are the returns on two stocks.

Digital Cheese Executive Fruit
January +15 +7
February 3 +1
March +5 +4
April +7 +13
May 4 +2
June +3 +5
July 2 3
August 8 2

Required:

a-1. Calculate the variance and standard deviation of each stock.

a-2. Which stock is riskier if held on its own?

b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks.

c. Is the variance more or less than halfway between the variance of the two individual stocks?

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