(Statistics and diversification of two stocks) Below please find the adjusted prices of Kellogg (K) and IBM:

a. Compute the annual return of each stock.

b. Compute the covariance and correlation coefficient between the returns of Kellogg and IBM.

c. Are there any advantages to diversifying between IBM and Kellogg?

Transcribed Image Text:

A B C D E F 1 IBM AND KELLOGG 2 Adjusted prices Annual return 3 Date Kellogg (K) IBM Kellogg (K) IBM 4 1999-01-04 25.25 74.02 5 2000-01-03 15.48 91.12 6 2001-01-02 17.39 91.34 7 2002-01-02 21.23 88.42 8 2003-01-02 23.66 64.56 9 2004-01-02 27.62 82.55 10 2005-01-03 33.4 78.31 11 2006-01-03 32.87 68.79 12 2007-01-03 38.65 85.02 13 2008-01-02 38.36 93.14 14 2009-01-02 36 81.09 15 2010-01-04 46.29 110.45 16 2011-01-03 44.11 149 17 2012-01-03 44.83 180.14 18 2013-01-02 54.74 193.13 19 2014-01-02 55.87 171.29 20 2015-01-02 65.08 152.24 21 22 Mean 23 Standard deviation 24 25 Covariance Correlation