Question
Using the data in the following table, estimate (a) the average return and volatility for each stock, (b) the covariance between the stocks, and (c)
Using the data in the following table, estimate (a) the average return and volatility for each stock, (b) the covariance between the stocks, and (c) the correlation between these twostocks. Year 2010 2011 2012 2013 2014 2015 Stock A -10% 20% 5% -5% 2% 9% StockB 21% 7% 30% -3% -8% 25% Now consider a portfolio that maintains a 50% weight on stock A and a 50% weight on stock B. d) Do you expect high erora lower volatility than the average volatility of the twostocks.Explain why? What is there turn each year of this portfolio? e) Based on your results from part a, compute each years return, averagere turn and volatility of the portfolio.
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