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The following table contains monthly returns for Cola Co. and Gas Co. for 2013 (the returns are shown in decimal form, i.e., 0.035 is 3.5%).
The following table contains monthly returns for Cola Co. and Gas Co. for 2013 (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 by: a. Using the formula: Var (R.) = w;SD (R4) 2 + w SD (R2) +2W, W2 Corr (R,.R2) SD (R,) SD (R2) b. Calculating the monthly returns of the portfolio and computing its volatility directly. c. How do your results compare? a. Using the formula: Var(Rp) = wSD (R,) 2+ w SD (R2) +2w, wzCorr (R,R2) SD (RA) SD(R) The volatility (standard deviation) of the portfolio is (%. (Round to two decimal places.) Month Cola Co. Gas Co. January -0.1084 -0.0600 February 0.0236 0.0128 March 0.0660 -0.0186 April 0.0201 -0.4190 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
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