Question
Problem 6-03 The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period. Month Madison Cookies Sophie
Problem 6-03
The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period.
Month | Madison Cookies | Sophie Electric | ||
1 | -0.03 | 0.05 | ||
2 | 0.05 | -0.01 | ||
3 | -0.07 | -0.13 | ||
4 | 0.14 | 0.15 | ||
5 | -0.02 | -0.04 | ||
6 | 0.05 | 0.03 |
Compute the following. Do not round intermediate calculations. Round your answers to four decimal places.
- Average monthly rate of return Ri for each stock.
Madison Cookies:
Sophie Electric:
- Standard deviation of returns for each stock.
Madison Cookies:
Sophie Electric:
- Covariance between the rates of return.
- The correlation coefficient between the rates of return.
Would these two stocks be good choices for diversification? Why or why not?
Madison Cookies and Sophie Electric are -Select-goodbadItem 7 choices for diversification as these assets have -Select-high positivehigh negativelow positivelow negativeItem 8 correlation.
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