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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 -0.0969 , 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(Rp)=w12SD(R1)2+w22SD(R2)2+2w1w2Corr(R1,R2)SD(R1)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)=w12SD(R1)2+w22SD(R2)2+2w1w2Corr(R1,R2)SD(R1)SD(R2) The volatility (standard deviation) of the portfolio is \%. (Round to two decimal places.) b. Calculating the monthly returns of the portfolio and computing its volatility directly. To find the monthly returns, use the following formula: RPt=wColatRColat+wGastRGast o find the volatility (standard deviation) of the portfolio, use the following formula: SD(R)=Var(R) Data table (Click on the following icon in order to copy its contents into a spreadsheet.)
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