Calculating average and standard deviation of the returns
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Below is recent monthly stock return data for Exxon Mobil (XOM) and Microsoft (MSFT). Using a spreadsheet and its functions, compute the average, variance, standard deviation, and correlation between the returns for these stocks. What does the correlation between the returns imply for a portfolio containing both stocks?
MONTH XOM RETURN MSFT RETURN
November -4.6% 10.4%
October 0.1% 13.6%
September -1.9% -10.3%
August -3.3% -13.8%
July -4.4% - 9.3%
June -1.6% 5.5%
May 0.7% 2.1%
April 9.4% 23.9%
March -0.1% -7.3%
February -3.2% -3.4%
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Solution Summary
EXCEL Spreadsheets have built-in functions which are useful for computing statistics like averages, standard deviation, variance, and correlation. Solution to given problem demonstrate the working of formulas to calculate average, standard deviation, variance and correlation coefficient of the returns.
Solution Preview
Please see excel spreadsheet for better understanding of formulas.
Average Return
XOM=-0.89% ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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