Question

1.

Returns on stocks X and Y are listed below:

Period	1	2	3	4	5	6	7
Stock X	1%	5%	-2%	5%	3%	12%	3%
Stock Y	7%	5%	10%	5%	1%	-3%	10%

What is the correlation of returns on the two stocks?

Please round your answer to the nearest hundredth.

Note that the correct answer will be evaluated based on the full-precision result you would obtain using Excel.

2.

Returns on stocks X and Y are listed below:

Period	1	2	3	4	5	6	7
Stock X	8%	12%	4%	-3%	2%	5%	-4%
Stock Y	-3%	7%	-4%	0%	5%	0%	6%

Consider a portfolio of 70% stock X and 30% stock Y.

What is the mean of portfolio returns?

Please specify your answer in decimal terms and round your answer to the nearest thousandth (e.g., enter 12.3 percent as 0.123).

Answer 1

1.

X Values
∑ = 27
Mean = 3.857
∑(X - M_x)² = SS_x = 112.857

Y Values
∑ = 35
Mean = 5
∑(Y - M_y)² = SS_y = 134

X and Y Combined
N = 7
∑(X - M_x)(Y - M_y) = -101

R Calculation
r = ∑((X - M_y)(Y - M_x)) / √((SS_x)(SS_y))

r = -101 / √((112.857)(134)) = -0.82