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Calculate the actual portfolio return

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Portfolio return and standard deviation Jamie Wong is thinking of hu i lding an investment portfolio containing two stock'>, L and M. Stock L will represent 40% of the dolla r value of the portfolio, and stock M will account for the other 60%.

The hi torical returns over the last 6 yea rs, 2013-201 8, for each of these stocks are shown in the following table.

Expected return

Year
Stock L
Stock M
2013
14%
20%
2014
14
18
2015
16
16
2016
17
14
2017
17
12
2018
19
10

a. Calculate the actual portfolio return, rp, for each of the 6 year .

b. Calculate the average return for each stock and for the portfolio over the 6-) ear period.

c. Calculate the standard deviation of retu rns for each asset and for the portfolio. How does the portfolio standard deviation compare to the standard deviation of the individual assets?

d. How would you characterize the correlation of returns of the two stocks L and M?

e. Discuss any benefits of diversification achieved by Jamie through creation of the portfolio.

Reference no: EM132758959

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