Question
The following table contains monthly returns for Cola Co. and Gas Co. for 2013: Cola Co. Gas Co. January -0.1084 -0.0600 February 0.0236 0.0128 March
The following table contains monthly returns for Cola Co. and Gas Co. for 2013: Cola Co. Gas Co. January -0.1084 -0.0600 February 0.0236 0.0128 March 0.0660 -0.0186 April 0.0201 -0.0190 May 0.1836 0.0740 June -0.0122 -0.0026 July 0.0225 0.0836 August -0.0689 -0.0246 September -0.0604 -0.0200 October 0.1361 0.0000 November 0.0351 0.0468 December 0.0054 0.0222 (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 0.6084 calculate the volatility (standard deviation) of a portfolio that is 55% invested in Cola Co. stock and 45% invested in Gas Co. stock. Calculate the volatility of the portfolio, b. Calculating the monthly returns of the portfolio and computing its volatility directly. c. How do your results compare?
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