Suppose that the index model for two Canadian stocks HD and ML is estimated with the following
where M is S&P/TSX Comp Index and RX is the excess return of stock X.
1. What is the standard deviation of each stock? (Hint: bi = (ρiM σi) / σM.)
2. What is the systematic risk of each stock?
3. What are the covariance and correlation coefficient between HD and ML?
4. For portfolio P with investment proportion of 0.3 in HD and 0.7 in ML, calculate the systematic risk, non-systematic risk and total risk of P.
1.Standard deviation of stock HD is 20.656% Standard deviation of stock ML is 47.434% 2.Systematic... View the full answer