Finance calculation

timer Asked: Apr 28th, 2016

Question description

1. Go to , and find the monthly rates of return over a 2-year period for five

companies of your choice. Now assume you form each month an equally weighted portfolio of

the five firms (i.e., a portfolio with equal investments in each firm). What is the rate of return

each month on your portfolio? Compare the standard deviation of the monthly portfolio return

to that of each firm and to the average standard deviation across the five firms. What do you

conclude about portfolio diversification?

2. Return to the monthly returns of the five companies you chose in the previous question.

a. Using the Excel functions for average (AVERAGE) and sample standard deviation (STDEV),

calculate the average and the standard deviation of the returns for each of the firms.

b. Using Excel’s correlation function (CORREL), find the correlations between each pair of

five stocks. What are the highest and lowest correlations?

c. Try finding correlations between pairs of stocks in the same industry. Are the correlations

higher than those you found in part (b)? Is this surprising?

be  specific 

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