Consider the two stocks below. Graph the frontier of combinations of the two stocks. Show the effect on the frontier of varying the correlation from −1 to +1. 1 2 3 Mean A B C D TWO STOCKS Varying the correlation coefficient Stock A Stock B 3.00% 8.00% 4 Sigma 15.00% 22.00% 5 Correlation 0.3000 F
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- 2.) Consider the expected returns, standard deviations, Sharpe ratios, and correlation matrix for three stocks: Correlation Matrix Pij Stock E(Ri) Stock 1 Stock 2 Stock 3 Sharpe 1 0.13 0.21 1.00 0.10 0.35 0.476 2 0.16 0.22 0.10 1.00 0.72 0.591 3 0.24 0.59 0.35 0.72 1.00 0.356 Use the Solver function in Excel to find the portfolio weights, portfolio expected return E(rp), portfolio standard deviation σp, and Sharpe ratio for the following optimal portfolios: P a.) The risky asset portfolio that minimizes standard deviation for a target expected return of 18%. Do not constrain short-sales. b.) The risky asset portfolio that maximizes the Sharpe ratio, short sales. Assume a risk-free rate of 3%. E(rp)-rf бр . Do not constrainSuppose that the index model for stocks A and B is estimated from excess returns with the following results:RA = 3% + .7RM + eARB = −2% + 1.2RM + eBσM = 20%; R-squareA = .20; R-squareB = .12What are the covariance and the correlation coefficient between the two stocks?The index model has been estimated for stocks A and B with the following results: RA= 0.12 +0.630RM+eA RB=0.04 +1.448RM+ eB OM= 0.290 o(eA) = 0.20 o(eg) = 0.10 What is the correlation coefficient between the two stocks? Note: Round your answer to 4 decimal places. Correlation coefficient 0.7951
- The index model has been estimated for stocks A and B with the following results: RA = 0.12 + 0.610RM + eA RB = 0.04 + 1.416RM + eB σM = 0.270 σ(eA) = 0.20 σ(eB) = 0.10 What is the covariance between each stock and the market index?Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.8% + 1.25RM + eA RB = –1.8% + 1.60RM + eB σM = 18%; R-squareA = 0.24; R-squareB = 0.18 What are the covariance and correlation coefficient between the two stocks? (Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. Round your answers to 4 decimal places.)Given the re-stated information below (and expected returns you should have already calculated), what is the correlation between Stock A and B returns? Enter correlation rounded to 4th digit, as in "0.1234"
- The correlation coefficient of two securities described in the table below is closest to: Covariance -0.06 SD1 30% SD2 20% Select one ○ A. -1. O B. +0.5. O C. +0.3. O D. +0.1.Need allStocks A and B have the following returns: (Click on the following icon in order to copy its contents into a spreadsheet.) Stock A Stock B 1 0.09 0.06 2 0.04 0.03 3 0.14 0.03 4 −0.02 0.02 5 0.07 −0.04 b. What are the standard deviations of the returns of the two stocks? If their correlation is 0.45, what is the expected return and standard deviation of a portfolio of 57%stock A and 43% stock B?
- Given the returns and probabilities for the three possible states listed below, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 8.10 percent and 11.60 percent, respectively. (Round answer to 4 decimal places, e.g. 0.0768.) Good OK Poor Covariance Probability 0.22 0.60 0.18 Return on Stock A 0.30 0.10 -0.25 Return on Stock B 0.50 0.10 -0.30You run a regression for the Tesla stock return on a market index to estimate the SML equation and find the following Excel output: Multiple R R-Square Adjusted R-Square Standard Error Observations Intercept Market = 0.28 0.25 0.02 40.01 60 13.35 and 0.97 0.8 and 0.1 0.28 and 0.25 0.26 and 1.36 0.2 and 0.75 Coefficients Standard Error t-Stat p-Value 0.2 0.75 The resulting SML equation for Laternios is given by: Er Laternios] 13.35 0.26 0.80 0.97 1.36 0.10 + __ × (E[rM] - rf)The index model has been estimated for stocks A and B with the following results: RA 0.01 +0.5RM + A RB = 0.02 +1.3RM + eB standard deviation of the market is 0.25, standard deviation of eA is 0.2 and standard deviation of eB is 0.10 What is the covariance betwween the returns on stocks A and B?.