Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs) Jamie plans to invest $2,000 in Vanguard S&P 500 ETF (VOO) and $8,000 in Invesco QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table: a. Calculate the portfolio return, rp, for each of the 6 years assuming that 20% is invested in VOO and 80% is invested in QQQ b. Calculate the average annual return for each ETF and the portfolio over the six-year period. c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFs? d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs? e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio. a. The portfolio return for year 2014 is %. (Round to two decimal places.) Data table (Click on the icon herein order to copy the contents of the data table below into a spreadsheet.) Historical return Year 2014 VOO 13.27% QQQ 18.19% 2015 1.26% 9.63% 2016 11.39% 6.59% 2017 21.56% 33.92% 2018 -3.61% -1.53% 2019 31.32% 38.88% Print Done
Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs) Jamie plans to invest $2,000 in Vanguard S&P 500 ETF (VOO) and $8,000 in Invesco QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table: a. Calculate the portfolio return, rp, for each of the 6 years assuming that 20% is invested in VOO and 80% is invested in QQQ b. Calculate the average annual return for each ETF and the portfolio over the six-year period. c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFs? d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs? e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio. a. The portfolio return for year 2014 is %. (Round to two decimal places.) Data table (Click on the icon herein order to copy the contents of the data table below into a spreadsheet.) Historical return Year 2014 VOO 13.27% QQQ 18.19% 2015 1.26% 9.63% 2016 11.39% 6.59% 2017 21.56% 33.92% 2018 -3.61% -1.53% 2019 31.32% 38.88% Print Done
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 13P
Question
![Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs) Jamie plans to invest $2,000 in Vanguard S&P 500 ETF (VOO) and $8,000 in Invesco QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a
sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table:
a. Calculate the portfolio return, rp, for each of the 6 years assuming that 20% is invested in VOO and 80% is invested in QQQ
b. Calculate the average annual return for each ETF and the portfolio over the six-year period.
c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFs?
d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs?
e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio.
a. The portfolio return for year 2014 is %. (Round to two decimal places.)
Data table
(Click on the icon herein order to copy the contents of the data table below
into a spreadsheet.)
Historical return
Year
2014
VOO
13.27%
QQQ
18.19%
2015
1.26%
9.63%
2016
11.39%
6.59%
2017
21.56%
33.92%
2018
-3.61%
-1.53%
2019
31.32%
38.88%
Print
Done](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1769b651-2b09-408b-ab1f-10a3a0d1763a%2F9538b511-f4de-408a-9b7b-2abae7862155%2Fyr63bbb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Portfolio return and standard deviation Jamie Wong is thinking of building an investment portfolio containing two exchange traded funds (ETFs) Jamie plans to invest $2,000 in Vanguard S&P 500 ETF (VOO) and $8,000 in Invesco QQQ Trust (QQQ). Jamie has decided to analyze some historical returns to get a
sense for her portfolio's possible future risk and return. Six years of historical annual returns for each ETF are shown in the following table:
a. Calculate the portfolio return, rp, for each of the 6 years assuming that 20% is invested in VOO and 80% is invested in QQQ
b. Calculate the average annual return for each ETF and the portfolio over the six-year period.
c. Calculate the standard deviation of annual returns for each ETF and the portfolio. How does the portfolio standard deviation compare to the standard deviations of the individual ETFs?
d. Calculate the correlation coefficient for the two ETFs. How would you characterize the correlation of returns of the two ETFs?
e. Discuss any likely benefits of diversification achieved by Jamie through creation of the portfolio.
a. The portfolio return for year 2014 is %. (Round to two decimal places.)
Data table
(Click on the icon herein order to copy the contents of the data table below
into a spreadsheet.)
Historical return
Year
2014
VOO
13.27%
QQQ
18.19%
2015
1.26%
9.63%
2016
11.39%
6.59%
2017
21.56%
33.92%
2018
-3.61%
-1.53%
2019
31.32%
38.88%
Print
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