Question: The following table contains a summary of (daily) data on two stocks and the market.
|
|
Expected Returns
|
Standard Deviation
|
|
Stock WMT
|
0.006
|
1.057
|
|
Stock MRK
|
-0.192
|
2.474
|
|
Market
|
0.005
|
0.694
|
|
|
|
Covariances
|
|
Covariance (WMT, MRK)
|
0.133
|
|
|
Covariance (WMT, Market)
|
0.368
|
|
|
Covariance (MRK, Market)
|
0.404
|
|
1) Compute the expected returns and standard deviation of a portfolio composed by 80% WMT and 20% MRK. Comment on your results.
2) Compute the beta for WMT and MRK.
3) Discuss total risk, diversifiable and undiversifiable risk for the two stocks, the portfolio – part a) above – and the market.