11. Calculate the covariance and correlation coefficient of the two stocks’ mont

Question

11. Calculate the covariance and correlation coefficient of the two stocks’ monthly returns with each other and with the returns of the S&P 500 index.

Which company’s returns are more closely correlated with the returns of the index?

Month Monthly Returns (%) Month Monthly Returns (%) Month Monthly Returns (%) Ended Yahoo Google S&P500 Ended Yahoo Google S&P500 Ended Yahoo Google S&P500 7-Dec -13.241 -0.219 -0.692 6-Dec -5.442 -5.018 1.403 5-Dec -2.61 2.457 0.036 7-Nov -13.794 -1.98 -4.182 6-Nov 2.544 1.767 1.899 5-Nov 8.818 8.806 3.778 7-Oct 15.861 24.632 1.59 6-Oct 4.193 18.534 3.257 5-Oct 9.249 17.595 -1.668 7-Sep 18.093 10.096 3.736 6-Sep -12.314 6.174 2.575 5-Sep 1.561 10.65 0.81 7-Aug -2.237 1.029 1.497 6-Aug 6.227 -2.087 2.376 5-Aug -0.06 -0.612 -0.912 7-Jul -14.302 -2.43 -3.097 6-Jul -17.758 -7.805 0.616 5-Jul -3.781 -2.172 3.717 7-Jun -5.47 4.979 -1.66 6-Jun 4.463 12.778 0.133 5-Jun -6.855 6.088 0.143 7-May 2.354 5.628 3.486 6-May -3.63 -11.035 -2.875 5-May 7.826 26.032 3.179 7-Apr -10.387 2.885 4.428 6-Apr 1.612 7.164 1.342 5-Apr 1.77 21.877 -1.896 7-Mar 1.393 1.938 1.116 6-Mar 0.624 7.551 1.244 5-Mar 5.051 -3.979 -1.769 7-Feb 9.007 -10.379 -1.95 6-Feb -6.735 -16.188 0.271 5-Feb -8.35 -3.9 2.103 7-Jan 10.846 8.908 1.511 6-Jan -12.264 4.291 2.648 5-Jan -6.555 1.468 -2.437

Explanation / Answer

The correlation coefficient and Covariance of Google is greater and that makes it more closely correlated to the market

Correlation coeff Covariance Yahoo 0.2530 4.85 Google 0.2826 5.97

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