Question
You are given the historical annual returns on the common stock of two companies Zeniba and Yubaba. Calculate the average (mean) return and standard deviation
You are given the historical annual returns on the common stock of two companies Zeniba and Yubaba. Calculate the average (mean) return and standard deviation of the returns for each company. Now assume that you create a portfolio consisting of 25% Zeniba and 75% Yubaba. What would the return on the portfolio have been in each year? What would have been the average return on the portfolio over this period? What would have been the standard deviation of the portfolio returns? Would diversification have reduced risk in this case? Why or why not?
Return on Portfolio: 25%Z, 75%Y Year 2011 2012 2013 2014 2015 2016 Return on Zeniba Stock 12% 16% 20% 24% 8% -20% Return on Yubaba Stock 8% 6% 8% 6% 8% 6% Average Standard Deviation
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