Question

Here are the returns on two stocks. Digital Cheese Executive Fruit January +13 +6 February −2...

Here are the returns on two stocks.

Digital Cheese Executive Fruit
January +13 +6
February −2 +1
March +4 +4
April +6 +14
May −3 +2
June +2 +5
July −1 −2
August −7 −1

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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Answer #1

a-2)

Digital cheese is riskier as its variance is higher

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