The following are the monthly rates of return for Dermot Ltd and for Solid Foods Ltd during a six-month period. Month Dermot Ltd Solid Foods Ltd 1 - 0.05 0.09 2 0.07 -0.03 3 -0.08 -0.12 4 0.14 0.16 5 -0.03 -0.08 6 0.06 0.04 Compute the following. a. Average monthly rate of return Ri for each stock b. Standard deviation of returns for each stock c. Covariance between the rates of return d. The correlation coefficient between the rates of return What level of correlation did you expect? How did your expectations compare with the computed correlation? Would these two stocks be good choices for diversification? Why or why not?
The following are the monthly rates of return for Dermot Ltd and for Solid Foods Ltd during a six-month period.
|
Month |
Dermot Ltd |
Solid Foods Ltd |
|
1 |
- 0.05 |
0.09 |
|
2 |
0.07 |
-0.03 |
|
3 |
-0.08 |
-0.12 |
|
4 |
0.14 |
0.16 |
|
5 |
-0.03 |
-0.08 |
|
6 |
0.06 |
0.04 |
|
|
|
|
Compute the following.
a. Average monthly rate of return Ri for each stock
b. Standard deviation of returns for each stock
c.
d. The
What level of correlation did you expect? How did your expectations compare with the computed correlation? Would these two stocks be good choices for diversification? Why or why not?
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