Portfolio return and standard deviationJamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs). Jamie plans to invest

$7,000

in Vanguard S&P 500 ETF

(VOO)

and

$3,000

in Invesco QQQ Trust

(QQQ).

Jamie has decided to analyze some historical returns to get a sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table:

LOADING...

.a.Calculate the portfolio return,

rp,

for each of the 6 years assuming that

70%

is invested in

VOO

and

30%

is invested in

QQQ.

b. Calculate the average annual return for each ETF and the portfolio over the six-year period.

c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFs?

d.Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs?

e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio.

Question content area bottom

Part 1

a. The portfolio return for year

2014

is

enter your response here%.

(Round to two decimal places.)

	Historical return
Year	VOO		QQQ
2014	13.87%		18.64%
2015	2.53%		9.85%
2016	12.69%		6.91%
2017	22.32%		32.36%
2018	3.74%		0.59%
2019	31.59%		39.34%

pop-up content ends

PrintDone