Reference no: EM132478565

Problem 1: Data from two listed companies from the S&P 500 index, from two separate Global Industry Classification Standards (GICS) sector. From the portfolio an equal proportion in each of the two stocks and determine the risk and return dynamics of the portfolio's returns. Provide your interpretation of the risk and return of the equally weighted portfolio compared to those of the individual assets. Furthermore, using the academic literature critically comment on the value of portfolio diversification.

                                            portfolio                      Insurance Company stock                         Retail corporation stock

Average Return               0.46%                                  0.30%                                             0.38%

Median Return                1.38%                                    0.52%                                           0.99%

Variance of Returns         0.23%                                     0.19%                                            0.19%

Standard Deviation of Returns 4.82%                                     4.32%                                        4.40%

Covariance of returns Cov 0.18%

Correlation of returns, ρ 85.17%