Compute the standard deviation and the expected return

Reference no: EM133559779

Darden Capital Management: The Cavalier Fund

Q1. On page 2, paragraph 4, Kramer claims that the standard deviation of return for the 50-50 portfolio of Groupon and Kinross Gold is lower than the standard deviation of returns of a pure position in either Groupon or Kinross Gold stock alone. Compute the standard deviation and the expected return of the 50-50 portfolio. Do you agree with Kramer's argument?

Q2. Exhibit 3 shows that Groupon and Kinross Gold have a similar annualized standard deviation. But why is Kinross Gold's beta so small compared to Groupon's?

Q3. Which of the four stocks should the Cavalier Fund pick? Explain your answer. Your answer may vary depending on the type of return or the model/methodology you choose. You might even argue that the Cavalier Fund should not add any stocks at all. I am willing to accept any answers as long as you provide good support for your argument. However, recall we did discuss in class that the Sharpe ratio is not the best benchmark for performance because it uses the total risk as a measure of the security risk.

Compute the standard deviation
The expected return of proposed portfolio investment
Show understanding of the diversifiable risk by making a recommendation on the stock investment
here is the case.

Question by question.

If I were advising Nickerson, I would recommend that he invest in the Delphi stock for the Cavelier Fund. Delphi is a large and established automotive parts manufacturer, which is a relatively safe investment, and it has a low volatility compared to other stocks. Furthermore, its stock price has been steadily increasing and is expected to continue to do so in the foreseeable future, indicating that it is an attractive and stable investment for the Cavelier Fund.

3. Using the data in Exhibit 2 in the case and given the following assumptions, calculate the average return, the standard deviation, and the ratio of average return to standard deviation for a portfolio of 50% of each stock and 50% of the S&P 500 (e.g., the first portfolio would be 50% of Delphi and 50% of the S&P 500):

Reference no: EM133559779

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