Using the data from Table 12.3, what is the volatility of an equally weighted po

Question

Using the data from Table 12.3, what is the volatility of an equally weighted portfolio of Boeing and Starbucks stock? The volatility of the portfolio is %. (Round to one decimal place.) Data Table TABLE 12.3 Estimated Annual Volatilities and Correlations for Selected Stocks (Based on Monthly Returns, January 2006-December 2015) Standard Deviation Microsoft StarbuckS Netflix Coca-Cola McDonald's Cisco Boeing Source: Authors' calculations based on data from The Center for Research in Security Prices. Cisco 28% 0.52 0.52 0.10 0.27 0.28 Boeing 26% 0.28 0.48 0.10 0.34 0.37 0.46 Microsoft 25% Netflix 61% Coca-Cola McDonald's Starbucks 29% 16% 0.40 0.23 0.00 14% 0.43 0.17 0.13 0.59 0.35 0.35 0.18 0.40 0.43 0.52 0.28 0.19 0.19 0.23 0.17 0.52 0.48 0.00 0.13 0.10 0.10 0.59 0.27 0.34 0.28 0.37 0.46

Explanation / Answer

Portfolio Variance = (weight of Boeing * St. deviation of Boeing)^2 +(weight of Starbucks * St. deviation of Starbucks)^2 + 2*weight of Boeing * St. deviation of Boeing*weight of Starbucks * St. deviation of Starbucks* correlation coefficient)

Coefficient of correlation between the stocks is 0.48 given from the table

= ( 0.0169) +(0.021025) + 0.018096 = 0.056021

Porfolio variance = 0.056021

Portfolio st.deviation = Sqrt (0.056021) = 0.23668 or 23.66%

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