| Returns, Risk and Correlations Go to finance.yahoo.com and obtain the monthly returns for GE, IBM, MSFT, and WMT over the last three years. Merge the returns for these firms into a single excel workbook with the returns for each company properly aligned.
- Using the Excel functions for Average and Standard Deviation, calculate the average return and standard deviation for each of the firms.
- Using the Correlation function construct the correlation matrix for the firms using the monthly returns for the entire period.
- Which pair of firms has the highest correlation coefficient? The lowest?
Minimum Variance Portfolios After reading this chapter, you can develop efficient portfolios. Daily price data can be obtained for securities at a number of sources provided by the Web links in this chapter. A good source is finance.yahoo.com. (Look for the "Historical Prices" tab once you enter ticker symbol of the firm you choose.)
- Download one year's worth of daily price data for two different stocks.
- Calculate the annualized standard deviation of the daily returns and the correlation coefficient of the returns on the two stocks.
- Use a spreadsheet to calculate the minimum-variance portfolio composed of these two stocks.
- What is the weight of each of these stocks in the minimum-variance portfolio?
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