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Consider the following annual returns of Estee Lauder and Lowes Companies: Estee Lauder Lowes Companies Portfolio Year 1 23.4% -6.0% Year 2 -26.0 16.1 Year
Consider the following annual returns of Estee Lauder and Lowes Companies:
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| Estee Lauder | Lowes Companies | Portfolio |
| Year 1 | 23.4% | -6.0% |
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| Year 2 | -26.0 | 16.1 |
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| Year 3 | 17.6 | 4.2 |
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| Year 4 | 49.9 | 48.0 |
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| Average Return |
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| Standard Deviation |
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a. By using a spreadsheet or calculator compute each stocks average return and standard deviation. Which stock has the higher total risk?
b. Assume you held a portfolio made up of these two stocks. You invested 50% of your money in each stock. Calculate the portfolio expected return and standard deviation. Did portfolio risk decrease?
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