Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs) Jamie plans to invest $2,000 in Vanguard S&P 500 ETF (VOO) and $8,000 in Invesco QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table: a. Calculate the portfolio return, rp, for each of the 6 years assuming that 20% is invested in VOO and 80% is invested in QQQ b. Calculate the average annual return for each ETF and the portfolio over the six-year period. c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFs? d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs? e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio. a. The portfolio return for year 2014 is %. (Round to two decimal places.) Data table (Click on the icon herein order to copy the contents of the data table below into a spreadsheet.) Historical return Year 2014 VOO 13.27% QQQ 18.19% 2015 1.26% 9.63% 2016 11.39% 6.59% 2017 21.56% 33.92% 2018 -3.61% -1.53% 2019 31.32% 38.88% Print Done
Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs) Jamie plans to invest $2,000 in Vanguard S&P 500 ETF (VOO) and $8,000 in Invesco QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table: a. Calculate the portfolio return, rp, for each of the 6 years assuming that 20% is invested in VOO and 80% is invested in QQQ b. Calculate the average annual return for each ETF and the portfolio over the six-year period. c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFs? d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs? e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio. a. The portfolio return for year 2014 is %. (Round to two decimal places.) Data table (Click on the icon herein order to copy the contents of the data table below into a spreadsheet.) Historical return Year 2014 VOO 13.27% QQQ 18.19% 2015 1.26% 9.63% 2016 11.39% 6.59% 2017 21.56% 33.92% 2018 -3.61% -1.53% 2019 31.32% 38.88% Print Done
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
Transcribed Image Text:Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs) Jamie plans to invest $2,000 in Vanguard S&P 500 ETF (VOO) and $8,000 in Invesco QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a
sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table:
a. Calculate the portfolio return, rp, for each of the 6 years assuming that 20% is invested in VOO and 80% is invested in QQQ
b. Calculate the average annual return for each ETF and the portfolio over the six-year period.
c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFs?
d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs?
e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio.
a. The portfolio return for year 2014 is %. (Round to two decimal places.)
Data table
(Click on the icon herein order to copy the contents of the data table below
into a spreadsheet.)
Historical return
Year
2014
VOO
13.27%
QQQ
18.19%
2015
1.26%
9.63%
2016
11.39%
6.59%
2017
21.56%
33.92%
2018
-3.61%
-1.53%
2019
31.32%
38.88%
Print
Done
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education