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The following table contains monthly returns for Cola Co. and Gas Co. for 2013 E (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 E (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) = w} SD(R4) 2 + wsD(R2) +2W, W2 Corr (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(Ro) = w; SD (R1) 2 + wSD (R2) +2wqW2 Corr (R4.R2) SD (R.) SD(R2) The volatility (standard deviation) of the portfolio is % (Round to two decimal places.) January February March April May June July August September October November December Cola Co. Gas Co. -0.021 0.028 0 -0.005 -0.02 -0.018 0.009 0.028 -0.031 0.084 -0.084 -0.046 -0.1191 0.082 -0.016) 0.046 0.055 0.03 -0.011 0.014 -0.038 0.029 -0.022 0.074
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