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The following are the monthly rates of return for Madison Cookies and for Sophie Electric during...

The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period:

Month Madison Cookies Sophie Electric

1 -0.06 0.05

2 0.04 -0.02

3 -0.07 -0.07

4 0.14 0.16

5 -0.03 -0.08

6 0.06 0.03

Compute the following. Do not round intermediate calculations. Round your answers to four decimal places.

A. Average monthly rate of return R̅i for each stock.

B. Standard deviation of returns for each stock.

C. Covariance between the rates of return.

D. The correlation coefficient between the rates of return.

E. Would these two stocks be good choices for diversification? Why or why not?

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 4 hours ago

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