What % Weighting Has the Smallest Risk? 0.006717 What % Weighting Has the Smalle

Question

What % Weighting Has the Smallest Risk?

0.006717

What % Weighting Has the Smallest Risk?

Risk and Return Frontier for 2 stocks and/or ETFs Weightings Monthly % return COW 1 0.88 0.75 0.62 0.5 0.38 0.25 0.12 0 month COW LSTK COW LSTK LSTK 0 0.12 0.25 0.38 0.5 0.62 0.75 0.88 1 16-Aug 21.26 40.14 16-Sep 18.2 34.4 -0.14393 -0.143 -0.14393 -0.14382 -0.1437 -0.14358 -0.14347 -0.14335 -0.14323 -0.14311 -0.143 16-Oct 19.28 36.18 0.059341 0.051744 0.059341 0.058429 0.057442 0.056454 0.055542 0.054631 0.053643 0.052656 0.051744 16-Nov 20.21 37.8 0.048237 0.044776 0.048237 0.047821 0.047371 0.046922 0.046506 0.046091 0.045641 0.045191 0.044776 16-Dec 22.36 39.35 0.106383 0.041005 0.106383 0.098538 0.090039 0.081539 0.073694 0.065849 0.05735 0.048851 0.041005 17-Jan 22.02 39.64 -0.01521 0.00737 -0.01521 -0.0125 -0.00956 -0.00663 -0.00392 -0.00121 0.001726 0.004661 0.00737 17-Feb 22.28 40 0.011807 0.009082 0.011807 0.01148 0.011126 0.010772 0.010445 0.010118 0.009763 0.009409 0.009082 17-Mar 22.31 40.55 0.001346 0.01375 0.001346 0.002835 0.004447 0.00606 0.007548 0.009037 0.010649 0.012262 0.01375 17-Apr 24.2 43.45 0.084715 0.071517 0.084715 0.083132 0.081416 0.0797 0.078116 0.076532 0.074816 0.0731 0.071517 17-May 25.59 45 0.057438 0.035673 0.057438 0.054826 0.051997 0.049167 0.046556 0.043944 0.041114 0.038285 0.035673 17-Jun 25.09 44.4 -0.01954 -0.01333 -0.01954 -0.01879 -0.01799 -0.01718 -0.01644 -0.01569 -0.01488 -0.01408 -0.01333 17-Jul 23.73 43.36 -0.0542 -0.02342 -0.0542 -0.05051 -0.04651 -0.04251 -0.03881 -0.03512 -0.03112 -0.02712 -0.02342 17-Aug 22.12 41.52 -0.06785 -0.04244 -0.06785 -0.0648 -0.06149 -0.05819 -0.05514 -0.05209 -0.04879 -0.04548 -0.04244 17-Sep 22.84 43.12 0.03255 0.038536 0.03255 0.033268 0.034046 0.034824 0.035543 0.036261 0.037039 0.037817 0.038536 17-Oct 23.01 43.24 0.007443 0.002783 0.007443 0.006884 0.006278 0.005672 0.005113 0.004554 0.003948 0.003342 0.002783 St dev 0.066174 0.053287 0.066174 0.064301 0.062356 0.060506 0.058891 0.057372 0.055844 0.054449 0.053287 Average 0.007752 0.006717 0.007752 0.007628 0.007494 0.007359 0.007235 0.007111 0.006976 0.006842

0.006717

Explanation / Answer

Standard deviation is a statistical measurement; when applied to the monthly rate of return of an investment, it sheds light on the historical volatility of that investment. The greater the standard deviation of a security, the greater the variance between each price and the mean, indicating a larger price range.

Standard deviation can be calculated by taking the square root of the variance, which itself is the average of the squared differences of the mean. For example, a volatile stock has a high standard deviation, while the deviation of a stable blue-chip stock is usually rather low.

So in the above question the lowest standard deviation is 0.053287 in the case where weightings of LSTK is 1 & COW is 0. Hence this is the case where % weighting has the smallest risk.

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