90.2K

Verified Solution

Link Copied!

Compute the correlation coefficients between all pairs of stock returns. Suppose an investor already has a stake in Citigroup (C) and would like to add another asset to her portfolio. Which of the remaining three assets will give her the maximum benefit of diversification? (Hint: Find the asset with the lowest correlation with Citigroup (C)). Using the table below:

Date	RET_MON	RET_FB	RET_TSLA	RET_C	RET_CWST
10/1/2015	9.233658935	13.42602751	-16.69484783	7.175966394	4.655172414
11/1/2015	2.710792104	2.226141981	11.27434533	1.730302867	11.69686985
12/1/2015	3.530900863	0.4029221106	4.234343877	-4.326123128	-11.79941003
1/1/2016	-8.038980816	7.213830223	-20.33665223	-17.7198029	-0.5016722408
2/1/2016	-0.1188613662	-4.714375766	0.3817970771	-8.759990194	-0.3361344538
3/1/2016	-2.500265395	6.715301285	19.71552773	7.464612997	12.98482293
4/1/2016	6.770007367	3.049959738	4.783039913	10.85029701	6.865671642
5/1/2016	20.81060816	1.046092855	-7.281109555	0.6266227447	0.2793296089
6/1/2016	-8.055473123	-3.812809592	-4.905253414	-8.975737599	9.331476323
7/1/2016	3.24919984	8.452925345	10.60391658	3.349851459	19.23566879
8/1/2016	0.2873178192	1.758916383	-9.702286588	8.970556746	-2.884615385
9/1/2016	-4.037559306	1.70472641	-3.7639716	-1.068290697	13.31133113
10/1/2016	-1.399230964	2.120527727	-3.087782694	4.065217023	8.737864078
11/1/2016	2.466863728	-9.596157356	-4.212816552	14.73041039	13.03571429
12/1/2016	2.434039572	-2.8457989	12.82471424	5.391028647	-1.974723539
1/1/2017	2.946492142	13.27249335	17.89507728	-6.057543328	-6.849315068
2/1/2017	5.638161494	4.005513904	-0.7700504322	7.128781761	1.038062284
3/1/2017	-0.5534573702	4.803017807	11.32444595	0.01671793986	20.80479452
4/1/2017	3.012365158	5.772613042	12.85304367	-1.17017887	6.661941885
5/1/2017	1.170725946	0.8053291181	8.577706371	2.401897876	-6.843853821
6/1/2017	0.8005469127	-0.3169226052	6.040871058	10.47240815	17.04707561
7/1/2017	-1.30112003	12.10094349	-10.5472707	2.347488144	2.254728824
8/1/2017	0.7849496696	1.607090694	10.02565706	-0.6135836646	0.1787723374
9/1/2017	1.911267114	0.1162976094	5.060413123	5.041893356	4.402141844

	a.	Facebook (FB)
	b.	Monsanto (MON)
	c.	Tesla (TSLA)
	d.	Casella Waste Systems (CWST)
	e.	None of the above

Answer & Explanation Solved by verified expert

See Answer