The following are the estimated volatilities and correlations of seven U.S. publicly traded stocks: Microsoft Dell Delta
Question:
The following are the estimated volatilities and correlations of seven U.S. publicly traded stocks:
Microsoft | Dell | Delta Air | AA | GM | Ford | Anheuser | ||
Std.Dev | 42% | 54% | 50% | 72% | 33% | 37% | 18% | |
Correlations: | ||||||||
Microsoft | 42% | 1 | 65% | 27% | 19% | 22% | 6% | -7% |
Dell | 54% | 65% | 1 | 19% | 18% | 32% | 32% | 10% |
Delta Air | 50% | 27% | 19% | 1 | 69% | 31% | 38% | 19% |
AA | 72% | 19% | 18% | 69% | 1 | 35% | 58% | 11% |
GM | 33% | 22% | 32% | 31% | 35% | 1 | 64% | 11% |
Ford | 37% | 6% | 32% | 38% | 58% | 64% | 1 | 10% |
Anheuser | 18% | -7% | 10% | 19% | 11% | 11% | 10% | 1 |
Computational questions.
What is the variance of Dell?
What is the covariance between Microsoft and AA
What is the covariance between Anheuser and Microsoft?
You are construct a equal-weighted portfolio comprised of Dell, Delta Air, AA and GM, what is the weight for each stock in your portfolio?
What is the volatility of the equal-weighted portfolio comprised of Dell, Delta Air, AA and GM?
What is the volatility of the equal-weighed portfolio comprised of Delta Air, AA, GM, Ford and Anheuser?
What is the volatility of the equal-weighted portfolio comprised of all the seven stocks?
From this example, you can see that in general as you diversify your portfolio with more stocks, the volatility of your portfolio_____, thus _____ the portfolio risk.
increases, raising
decreases, raising
increases, reducing
decreases, reducing
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill