The following are the monthly rates of return for Madison Corp. and for Sophie Electric during a six-month period.
a. Compute the average monthly rate of return for each stock.
b. Compute the standard deviations for each stock.
c. Compute the covariance between the rates of return.
d. Compute the correlation between the rates of return.
e. What level of correlation did you expect?
How did your expectations compare with the computed correlation?
Would these two stocks offer a good chance for diversification. Why or whynot?