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Here are the returns on two stocks.



Digital Cheese Executive Fruit
January +15 +8
February −4 +2
March +6 +7
April +8 +15
May −5 +3
June +4 +8
July −3 −4
August −9 −3


Required:

a-1. Calculate the variance and standard deviation of each stock.

a-2. Which stock is riskier if held on its own?
b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks.

c. Is the variance more or less than halfway between the variance of the two individual stocks?

Sagot :

Parrain

Based on the returns on Digital Cheese and Executive Fruit, the variance and standard deviation of each stock is:

Variance:

  • Digital cheese = 56.8
  • Executive fruit = 34.8

Standard deviation:

  • Digital cheese = 7.5
  • Executive fruit = 5.9

This means that Digital Cheese is riskier if held alone.

What are the variances and standard deviations of the stock?

Using a spreadsheet, one can order the given returns and then find the variance using mathematical functions.

When this is done, the variances on Digital cheese and Executive fruit would be 56.8 and 34.8 respectively.

You can then take the square roots of these variances to find the standard deviations as 7.5 and 5.9 respectively.

Because Digital Fruit has a higher standard deviation, it is considered to be riskier in terms of returns.

Find out more on the standard deviation of returns at https://brainly.com/question/17191184.

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