Question

Using the data in the following​ table, estimate the average return and volatility for each stock.

Realized Returns

year      stock A      stock B

2008        -7%           20%

2009          18%        23%

2010          9%           12%

2011          -4%          -4%

2012           4%          -8%

2013           10%         -28%

The return of stock A is ​%

the return of stock B %

The variance of stock A

The variance of stock B

The standard deviation of Stock A %

The standard deviation of stock B %

Answer 1

Average Return of Stock A = (-7%+18%+9%-4%+4%+10%)/6 = 5%
Average Return of B =(20%+23%+12%-4%-8%-28%)/6 = 2.5%
Variance of Stock A = ((-7%-5%)²+(18%-5%)²+(9%-5%)²+(-4%-5%)²+(4%-5%)²+(10%-5%)²)/(6-1) = 0.8720% or 0.87%
Variance of Stock B = ((20%-2.5%)²+(23%-2.5%)²+(12%-2.5%)²+(-4%-2.5%)²+(-8%-2.5%)²+(-28%-2.5%)²)/(6-1) = 3.799% or 3.80%
Standard Deviation of A = ( Variance of A)^0.5 = 0.8720%^0.5 = 9.34%
Standard Deviation of B= ( Variance of B)^0.5 = 3.799%^0.5 = 19.49%

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