Problem:
Stocks X and Y have the following historical returns:
Year Stock X Stock Y
2000 18.0% 37.0%
2001 -5.0% 10.0%
2002 0.0% -37.0%
2003 32.0% 11.0%
2004 22.5% -7.0%
2005 -6.0% 36.0%
2006 11.0% 23.5%
Q1. Calculate the average rate of return for each stock during the period.
Q2. Assume that you had a portfolio consisting of 50% in each stock. What would have been your realized rate of return on the portfolio each year, and your average rate of return on the portfolio during the period.
Q3. Calculate the standard deviation for each stock and for the portfolio.
Q4. Calculate the coefficient of variation for each stock and for the portfolio.
Q5. Calculate the correlation coefficient between the stocks in the portfolio.