In: Finance
What do you notice about the average of the volatilities of the individual stocks, compared to the volatility of the equally weighted portfolio?
Reward | Equally Weighted Portfolio | ||||||||||||
Ave Mon Return | 1.34% | 0.66% | 0.82% | 2.71% | 1.39% | 0.23% | 1.21% | 0.53% | -0.13% | 1.80% | 2.35% | 0.38% | 1.11% |
Annual Return | 16.12% | 7.87% | 9.87% | 32.48% | 16.66% | 2.82% | 14.47% | 6.36% | -1.58% | 21.62% | 28.23% | 4.55% | 13.29% |
Risk | |||||||||||||
Std Dev Monthly | 5.35% | 5.32% | 6.06% | 6.75% | 6.50% | 4.72% | 7.40% | 5.28% | 5.10% | 5.74% | 6.15% | 3.78% | 3.05% |
Std Dev Annual | 18.53% | 18.42% | 20.98% | 23.39% | 22.51% | 16.34% | 25.65% | 18.29% | 17.67% | 19.87% | 21.31% | 13.08% | 10.58% |
The volatilities of individual stocks are higher as compared to the volatility of the equally weighted portfolio. The reason responsible for this conculsion is the correlation between these stocks. If the correlation between these stocks is negative, then the net volatility of the equally weighted portfolio decreases. Hence, it is recommended to diversify the portfolio to lower the risk and on a whole the volatility.