The following are monthly percentage price changes for four market indexes.
Month DJIA S&P 500 Russell 2000 Nikkei
1 0.03 0.02 0.04 0.04
2 0.07 0.06 0.10 -0.02
3 -0.02 -0.01 -0.04 0.07
4 0.01 0.03 0.03 0.02
5 0.05 0.04 0.11 0.02
6 -0.06 -0.04 -0.08 0.06
Compute the following.
a. Average monthly rate of return for each index.
b. Standard deviation for each index
c. Covariance between the rates of return for the following indexes.
- DJIA -S&P 500
- S&P 500-- Russell 2000
- S&P 500- Nikkei
- Russell 2000- Nikkei
d. the correalation coefficients for the same four combinations
e. Using the answer from parts (a), (b), and (d), calculate the expected return and standard deviation of a portfolio consisiting equal parys of (1) the S&P and the Russell 2000 and (2) the S&P and the Nikkei. Discuss the two portfolios.