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Q3: Returns on the stock of FBM and MMInc for the years 2017-2020 are shown below. FBM MMInc 2017 -18.00% 26.00% 2018 32.00% -5.00% 2019
Q3: Returns on the stock of FBM and MMInc for the years 2017-2020 are shown below.
| FBM | MMInc |
2017 | -18.00% | 26.00% |
2018 | 32.00% | -5.00% |
2019 | 18.00% | 3.00% |
2020 | 1.00% | 10.00% |
1. Compute the average annual return for each stock and a portfolio consisting of 50% FBM and 50% MMInc.
2. Compute the standard deviation for each stock and the portfolio.
3. Are the stocks positively or negatively correlated and what is the effect on risk?
Explain your answers and show your work.
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