7. Using historical data to measure portfolio risk and Peter Is an investor who believes that past variability of stocks is a reasonably good estimate of future risk associated with the stocks. Peter works on creating a new portfolio and has already purchased stock A. Now he considers two other stocks, B and C. Peter collected data on the historic rates of return for all three stocks, which are presented in the following table. Complete the table by calculating standard deviations for each stock: Year Stock B Stock C Stock A 30% 2015 25% -10% 2016 25% 30% -5% 2017 -5% -10% 30% 2018 -10% -5% 25% Average return Estimated standard deviation Suppose Peter can only afford to complement stock A by adding just one of the two other stocks, either stock B or stock C. Complete the following table by computing correlation coefficients between stocks A and B and between stocks A and C, and calculate average retums and standard deviation for the two potential portfolios, AB and AC: Stocks A and B Stocks A and C Correlation coefficient Average return Standard deviation Suppose Peter has to choose between two portfolios, AB and AC. Peter will be better off choosing Stocks A and B Stocks A and C Correlation coefficient Average return Standard deviation Suppose Peter has to choose between two portfolios, AB and AC. Peter will be better off choosing Which of the following statements about portfolio diversifications are correct? Check all that apply. Portfolios that include stocks of only big companies minimize risk. Diversification can reduce risk but not eliminate it. Returns on stocks in the same industry are more closely correlated than on stocks in different industries. Correlation between returns on stocks of small companies is smaller than returns on stocks of big companies