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The following table contains monthly returns for Cola Co. and Gas Co. for 2013 3 (the returns are shown in decimal form, i.e., 0.035 is
The following table contains monthly returns for Cola Co. and Gas Co. for 2013 3 (the returns are shown in decimal form, i.e., 0.035 is 3.5%). Using this table and the fact that Cola Co. and Gas Co. have a correlation of -0.0969, calculate the volatility (standard deviation) of a portfolio that is 50% invested in Cola Co. stock and 50% invested in Gas Co. stock. Calculate the volatility by: a. Using the formula: Var (Ro) = wSD(R1) 2+1 +wsD (R2) +2w1 W2 Corr(R1,R2) SD (R4) SD (R2) b. Calculating the monthly returns of the portfolio and computing its volatility directly. c. How do your results compare? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Month Cola Co. Gas Co. January -0.0210 0.0280 February 0.0000 -0.0050 March a. Using the formula: Var(Rp) = w;sD(R4) 2 + wSD (R2) +2WW2Corr (R1,R2) SD (RA) SD(R2) The volatility (standard deviation) of the portfolio is%. (Round to two decimal places.) April -0.0200 0.0090 -0.0310 -0.0180 0.0280 0.0840 May June -0.0840 -0.0460 - 0.1190 0.0820 July August September -0.0160 0.0460 0.0550 0.0300 October -0.0110 0.0140 November -0.0380 0.0290 December -0.0220 0.0740
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