X and Y are domestic stocks in country X and country Y,
respectively. The mean and standard deviation (SD) of monthly
returns, over a given period of time, for the stock markets of two
countries, X and Y are
Country X: mean = 1.57%, SD = 4.87%
Country Y: mean = 1.92%, SD = 7.64%
Assuming that the monthly risk-free interest rate is 0.4%, what are
the Sharpe performance measures, SHP(X) and SHP(Y)? Which one is
superior?
Continue from the previous problem. Assuming you are now constructing an international portfolio by including securities from both country X and country Y, with equal weights.
(Please round your answer to 3 decimal places.)
a. What is your portfolio return? %.
b. Assuming the standard deviation of your portfolio is 4.5. What
is the Sharpe performance measure of your international
portfolio? .
c. What are the gains from your international diversification
compared to domestic investment in country X and country Y,
respectively? Gains are measured as the increase in the portfolio
return at the domestic-equivalent risk level)
Gains compared with country X=
Gains compared with country Y=
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