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    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?

    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 Preview

    Please see excel spreadsheet for better understanding of formulas.

    Average Return
    XOM=-0.89% ...

    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.