Question

Stocks A and B have the following​ returns:

	Stock A	Stock B
1	0.110.11	0.050.05
2	0.070.07	0.030.03
3	0.140.14	0.030.03
4	negative 0.02−0.02	0.010.01
5	0.080.08	negative 0.04−0.04

a. What are the expected returns of the two​ stocks?

b. What are the standard deviations of the returns of the two​ stocks?

c. If their correlation is

0.44

what is the expected return and standard deviation of a portfolio of

78​%

stock A and

22​%

stock​ B?

Answer 1

Answer 1 & 2

	X	Y
Mean	0.076	0.016
SD	0.05389	0.03072

Answer 3 = Expected Return = 0.0628 and Portfolio SD = 0.0423

Where Wa = = Weight of stock a ; Wb = Weight of STock B,

Ra = Return from Stock a      and Rb = Return from Stock B

where Wa = Weight of stock a ; Wb = Weight of STock B; SDa = Standard deviation of stock A; SDb = Standard deviation of stock B; r = Correlation COefficient between a & b

Results are

For Portfolio SD and Portfolio Return

Result