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4. Data Case
In this question, we examine whether stocks average return is related to their volatility. In particular, we
use historical prices of the following stocks (Inside the parenthesis are stock symbols).
Citigroup Inc. (C)
Ford Motor Company (F)
Salesforce, Inc. (CRM)
You may obtain historical prices from Yahoo Finance as follows:
Type in each stock symbol and click Historical Data.
Choose the monthly frequency.
For the time period, enter the start date as January 1, 2016 and the end date as December 31,
2022.
After hitting Apply click Download Data.
Open the downloaded data in Excel. Delete all the columns except the date and the adjusted close
(Among different price quotes, we use adjusted-close price to compute returns).
Next, using the adjusted close prices, we calculate stock returns for each month. Specifically, given prices Pt
in month t and Pt1 in month t 1, the rate of return is
Rt =
Pt
Pt1
1.
(a) Calculate the average returns on these three stocks and report in the following table.
C F CRM
Average return
(b) Calculate the standard deviation of these three stocks and report in the following table.
C F CRM
Standard deviation
(c) Using the statistics found in (a) and (b), draw a scatter plot, where X variables are the standard
deviation, and Y variables are the average return.
(d) Do you see a clear relationship between average return and standard deviation? How would you interpret
this result?
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