a. Calculate monthly returns for each stock and the S&P 500 Index. The return for each month is calculated as:
Return = (End Price – Begin Price + Dividend) / Begin Price,
However, because we are using adjusted returns, you will not have a dividend component and the return will be calculated as:
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Return = (Adjusted End Price – Adjusted Begin Price) / Adjusted Begin Price,
For example, the return for January is the January adjusted close price minus the December adjusted close price, divided by the December adjusted close price.
b. Calculate the arithmetic average monthly return and standard deviation of returns for all stocks and the S&P 500 index. Make sure to use the sample standard deviation. The Excel function for sample standard deviation is STDEV.S or STDEV.
c. Calculate the correlation between the returns for all pairs of stocks and between each stock and the S&P 500.