Question: Using the data in the following table, answer parts (i) (v). Year Stock X Stock Y 2012 -11% -5% 2013 15% 25% 2014 10% 15%
Using the data in the following table, answer parts (i) (v).
| Year | Stock X | Stock Y |
| 2012 | -11% | -5% |
| 2013 | 15% | 25% |
| 2014 | 10% | 15% |
| 2015 | -5% | -15% |
| 2016 | 5% | -5% |
| 2017 | 8% | -2% |
| 2018 | 7% | 10% |
| 2019 | 5% | 15% |
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| Average return |
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| Standard deviation |
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| Correlation between Stock X and Stock Y | 0.7567 | |
- Estimate the average return for each stock.
- Calculate the standard deviation of returns for Stocks X and Y.
- For a portfolio that is 75% weighted in Stock X, and 25% weighted in Stock Y, calculate the expected return of the portfolio.
- Calculate the standard deviation of your portfolio based on the weights of Stocks X and Y stated in part (iii).
- Suppose the correlation between Stocks X and Y has reduced to 0.35, does it increase or reduce the standard deviation of your portfolio based on the weights of Stocks X and Y stated in part (iii). Explain your answer.
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