The data below are annual total returns for General Foods

#3572
The data below are annual total returns for General Foods (GF) and Sigma Technology (ST) for
the period 1997-2011. Sigma Technology is highly regarded by many investors for its innovative
products. It had returns more than twice as large as that of General Foods What would have
been the results if an investor had placed half her funds in General Foods and half in Sigma
Technology during this 15-year period in order to try to earn a larger return than that available m
General Foods alone? Would the risk have been too large?a. Calculate the arithmetic mean
returns for each stock.b. Calculate the standard deviation for each stock using the STDEV
function in the spreadsheet.c. Calculate the correlation coefficient using the CORREL function
in the spreadsheet.d. Calculate the covariance using the COVAR function in the
spreadsheet.e. Calculate the portfolio return assuming equal weights for each stock.f. Set up a
calculation for the standard deviation of the ponfolio that will allow you to substitute different
values for the correlation coefficient or the standard deviations of the stocks. Using equal
weights for the two stocks, calculate the standard deviation ol the portfolio consisting of equal
parts of the two stocks.g. How does the portfolio return compare to the return on General
Foods alone? How does the risk of the portfolio compare to the risk of having held General
Foods alone?h. Assume that the correlation between the two stocks had been -0.10. How
much would portfolio risk have changed relative to the result calculated in f?View Solution:
The data below are annual total returns for General Foods

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