Calculate the correlation coefficient and portfolio return

Assignment Help Financial Management
Reference no: EM132068771

1. Choose two stocks (in two different sectors) from Yahoo Finance (*these two companies should have been on the market for more than 3 years, and should also pay dividends historically). Download Monthly

Historical Price (Adjusted Close Price) from Jan 1st 2015 to Jan 1st 2018. Calculate Monthly Average Return (Arithmetic Mean), Monthly Compounded Return (Geometric Mean of Return), and Risk (Standard Deviation of Historical Monthly Return).

2. Construct an investment portfolio through allocating different weights to the two stocks you picked up. Calculate the covariance, correlation coefficient and portfolio return and risk, based on the original weights you assign. Change the weight from 0 to 100%, and calculate the corresponding return and risk of your portfolio. Plot the return and risk on the ‘mean-variance’ analysis diagram, and illustrate the investment possibility curve. On the Investment Possibility Curve, highlight the minimum variance portfolio and Markowitz efficient frontier (highest return for given level of risk, or smallest risk for given level of return). Calculate the weight, return and risk for the minimum variance portfolio.

Reference no: EM132068771

Questions Cloud

What is the accounting break-even quantity : The required rate of return on this new product line is 12%. Ignoring taxes, what is the accounting break-even quantity?
How will the after-tax operating cash flow change : How will the after-tax operating cash flow (ATOCF) change if the number of units sold is 10% less than the projected demand of 15,000 units?
The capitalization table in term sheet summarizes : The capitalization table in a term sheet summarizes the ownership positions of all parties before and after a series of investments are made.
Dilution of ownership is benefit to early stage venture : Dilution of ownership is a benefit to an early stage venture capitalist because it indicates that other investors want a share of the same venture.
Calculate the correlation coefficient and portfolio return : Calculate the covariance, correlation coefficient and portfolio return and risk, based on the original weights you assign.
Investors and founder is legally binding agreement : The term sheet between an investors and founder is a legally binding agreement.
Refinancing the outstanding mortgage balance at lower rate : What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate?
What are the monthly mortgage payments : A homeowner takes out a $367,000, 30-year fixed-rate mortgage at a rate of 5.45 percent. What are the monthly mortgage payments?
What is the yield to maturity of this bond : A Treasury bond with the longest maturity (30 years) has an ask price quoted at 105.4375. What is the yield to maturity of this bond?

Reviews

Write a Review

Financial Management Questions & Answers

  Trade european call and put options on stock

Suppose you can trade European call and put options on a stock with a current price of S at maturities and strike prices of your choice. However, due to your portfolio risk management you want to take a forward positionmaturing at time T on this stoc..

  What rate of return do you expect to earn on your investment

Suppose you buy a 9.4 percent coupon bond today for $1,120. The bond has 5 years to maturity. What rate of return do you expect to earn on your investment? Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. W..

  Policy memorandum

Policy memorandum: At the end of the course, students will submit a 15- to 20-page memorandum to a decision maker,

  Using the us straight line depreciation schedule

Using the US Straight Line Depreciation Schedule, estimate the value of depreciation recorded in the accounting books in the year 2004

  Define the intrinsic value of security

State the most appropriate objective of the firm and justify your answer. Precisely define the intrinsic value of a security and compare the intrinsic value analysis to the NPV rule in investment decision making.

  Diversification occurs when stocks with low correlations

Diversification occurs when stocks with low correlations of returns are placed together in a portfolio. Identify at least one type of firm that might exhibit low correlations of returns with the overall stock market? Explain why the correlations of t..

  What is the expected return of your portfolio

Stock J has a beta of 1.3 and an expected return of 13.66 percent, while Stock K has a beta of .85 and an expected return of 10.6 percent.

  Earn higher rate of return on your investments

Which of the following conclusions would be true if you earn a higher rate of return on your investments? If the interest rate is positive, then the future value of an annuity due will be greater than the future value of an ordinary annuity.

  Discuss how offshoring has impacted the leverage

Two companies manufacture can openers. Relevant data follows: Old School Hi Tech Manufacturing, Inc. Manufacturing, Inc. Degree of Operating Leverage 2.2 5.7 Degree of Financial Leverage 1.5 3.3 Which of these companies is more at risk? Why? Discuss ..

  How much will the expansion cost in annual interest

Barbarita’s Linens want to expand into the store next door to set up a Baby Supply Store. She needs $150,000 for the build out and new inventory of the project. Calculate the WACC. How much will the expansion cost in annual interest?

  Growth rate is expected to equal the industry average

Pettway Corporation’s next annual dividend is expected to be $4. The growth rate in dividends over the following three years is forecasted at 15%. After that, Pettway’s growth rate is expected to equal the industry average of 5%. If the required retu..

  What are major factors that determine value of a firms stock

Why do you think the bondholders wanted to block this transaction? What arguments can you make for and against the bondholders' case?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd