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Here are the returns on two stocks
Here are the returns on two stocks.
Digital Cheese Executive Fruit
January +16 +9
February -4 +1
March +6 +7
April +8 +16
May -5 +2
June +4 +7
July -3 -4
August -9 -3
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?
Expert Solution
a-1) Variance for Digital Cheese = 60.23
Standard deviation for Digital Cheese = 7.76
Variance for Executive Fruit = 38.98
Standard deviation for Executive Fruit = 6.24
a-2) The standard deviation is higher for Digital Cheese and hence it is riskier than Executive Fruit.
b) Please see the attachment:
c) Standard deviation of the portfolio is less than half way between variance of Digital Cheese and Executive Fruit.
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