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The common stock of Walden Books has a standard deviation of 16
The common stock of Walden Books has a standard deviation of 16.4 percent as compared to the market standard deviation of 12.7 percent. The covariance of this stock with the market is .0068
What is the correlation (ρ) of Walden's stock with the market?
(Enter your answer as a number rounded to 4 decimal places)
What is the beta (β) of Walden Books' stock?
(Enter your answer as a number rounded to 2 decimal places)
Expert Solution
Computation of the correlation (ρ) of Walden's stock with the market:-
Correlation Coefficient = Covariance with market / ( Standard Deviation of Stock * Standard Deviation of Market)
= 0.0068 / (16.4% * 12.7%)
= 0.0068 / 0.0208
= 0.3265
Computation of the beta (β) of Walden Books' stock:-
Variance of market = (Standard deviation)^2
= (12.7%)^2
= 0.01613
Beta of stock = Covariance of stock and market return / Variance of market
= 0.0068 / 0.01613
= 0.42
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