Question
In: Finance
You wish to create a portfolio consisting of the stocks Coil Inc. and Amp Engines. You observe the following information about past returns:
You wish to create a portfolio consisting of the stocks Coil Inc. and Amp Engines. You observe the following information about past returns:
Furthermore, your analysts have provided a preliminary report about the individual stock performance:
You consider investing 89% in stock A and 11% in stock B.
a) Compute the covariance and correlation between both stocks!
b) Compute the expected return of this portfolio!
c) Compute the expected volatility of this portfolio!
Solutions
Expert Solution
a.
Covariance and correlation can be calculated using below formula.
| Annual Return | Coil | Amp |
| 2018 | 5.26% | 4.84% |
| 2019 | 5.18% | 16.49% |
| 2020 | 4.70% | -4.45% |
| Avg | 5.05% | 5.63% |
| Covariance | 0.0179% | |
| Correlation | 56.78% |
| Weight | 89.00% | 11.00% | |
| Avg Return | 5.05% | 5.63% | |
| Volatility | 0.30% | 10.49% |
b.
Expected retun of the portfolio
| Expected return of Portfolio | 5.113800% | =(weight of stock a * expected return of stock a) + (weight of stock b * expected return of stock b) |
c. Expected volatility
| Portfolio Volatility | 4.873% |
Junaid answered 1 year agoRelated Solutions
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1 13% 1.15 .11
2 44% 0.95 .08
3 19% 1.60 .14
4 24% 1.30 .12
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Select one:
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