7. For this exercise you would need to use the spreadsheet ps2.xls posted on the Blackboard. The file contains information about monthly returns of twelve stocks, AMGN, AMZN, STX, MSFT, BA, WMT, PFE, ABB, YHOO, AAPL, VZ, GOOG, as well as the value-weighted market index excess return (MKT-RF), and the risk-free rate (RF). The sample period begins on January 2004 and ends December 2012. The spreadsheet is set in a way that you would only need to change the values in cells H122 and T123 in order to control the portfolio weights and the stock/portfolio chosen for the regression calculation.

(d) Plot the fraction of idiosyncratic risk as a function of the number of stocks in the portfolio. What is your conclusion?