Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
From the table above compute the following:
1. Covariance of the returns of:
a. Microsoft and HP
b. HP and Alaska Air
c. Southwest and Ford Motors
d. Kellogs and General Mills
e. Kellogs and Microsoft
2. Volatility of a Two-Stock Portfolio consisting of equally weighted investments in
a. Microsoft and HP
b. HP and Alaska Air
c. Southwest and Ford Motors
d. Kellogs and General Mills
e. Kellogs and Microsoft
3. Which of the combinations in stock in No.2 most benefited from diversifications? Why?
Transcribed Image Text:Table 11.3 Historical Annual Volatilities
and Correlations for Selected Stocks
Ford
Motor
Microsoft
Kellogg
General
Mils
НР
Alaska
Air
Southwest
Airlines
Volatility
(Standard
Deviation)
33%
37%
37%
31%
50%
20%
17%
Correlation with
Microsoft
1.00
0.39
0.21
0.24
0.27
0.05
0.08
HP
0.39
1.00
0.28
0.35
0.27
0.11
0.06
Alaska Air
0.21
0.28
1.00
0.39
0.15
0.15
0.20
Southwest
0.24
0.35
0.39
1.00
0.30
0.15
0.22
Airlines
Ford Motor
0.27
0.27
0.15
0.30
1.00
0.18
0.06
Kellogg
0.05
0.11
0.15
0.15
0.18
1.00
0.54
General Mils
0.08
0.06
0.20
0.22
0.06
0.54
1.00
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