For the above companies, collect data on stock prices and other information for the last five years

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Question:

For the above companies, collect data on stock prices and other information for the last five years to December 2021. In addition to stock data also include a suitable market index and a risk-free rate. You may use monthly data. Please provide the source of your data.

a) Compute the following based on the data you collected:

(i) Average return

(ii) Standard deviation of return

(iii) Correlation between each pair of securities

(iv) Excess return

(v) Sharpe ratio Explain the formula/methods used in your data analysis. Did you encounter any problems in your analysis? (10 marks)

b) Choose the stock with the highest Sharpe ratio – label this as Stock X. Using the concepts learned in Chapter 7, you are going to construct a portfolio for one of your clients. His degree of risk aversion, A = 3. The constructed risky portfolio will maximize the Sharpe ratio and will contain two risky assets – Stock X and the market portfolio (M) combined with the risk-free asset.

(i) What would be the optimal asset allocation for the client? (5 marks)

(ii) What should be the client’s optimal capital allocation? (5 marks)