Answer to Question #258626 in Finance for Meet

Question

1. From the following information, calculate the volatility of the portfolio and comment

on the relationship among the stocks return.

Day Stock A Stock B Stock C 

1 0.4      2.2      0.6

2 1.1      1.3      0.5 

3 0.9      1.2      1.4

4 1.7      1.9     1.6

Answer 1

portfolio volatility = $\sqrt{Var(X+Y+Z)}$

$Var(X+Y+Z)=Var(X)+Var(Y)+Var(Z)$

X - Stock A, Y - Stock B, Z - Stock C

$Var(X)=0.217,Var(Y)=0.1725,Var(Z)=0.232$

portfolio volatility = $\sqrt{0.217+0.1725+0.232}=0.788$

relationship among the stocks return:

correlation coefficients:

$r_{XY}=-0.187$ - a non significant very small negative relationship

$r_{XZ}=0.633$ - a non significant large positive relationship

$r_{YZ}=-0.094$ - a non significant very small negative relationship