1. Go to finance.yahoo.com, and find the monthly rates of return over a 2-year p

Question

1. Go to finance.yahoo.com, and find the monthly rates of return over a 2-year peri companies of your choice. Now assume you form each month an equally weighted portfolio of the five firms (i.e., a portfolio with equal investments in each firm). What is the rate of return each month on your portfolio? Compare the standard deviation of the monthly portfolio return with that of each firm and with the average standard deviation across the five firms. What do you conclude about portfolio diversification? od for five

Explanation / Answer

SOLUTION:

Let us consider and form monthly weighted portfolio of the data.Assuming you are investing $10,000 of each of these firms every month. So, you have to make a new excel document and paste.

Now I will take the example of Microsoft suppose you invested $10,000 in Microsoft on 4 may 2015 closing price is $48.24. So in $10,000 you will have 207.29 stocks.

The monthly return can be found by calculating returns in june, july,august and so on this gives monthly return combine the returns stock wise and you will get the returns on your portfolio.

When you will compare the returns of firms with the portfolio hence I presume that you will find less variability in returns due to diversification.What you will be able to conclude is that diversification reduces the risk.

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