1. 1-Using the information given in Exhibit 1, calculate the historical returns for each company and the share market index. With the use of the excel functions calculate the average monthly return and standard deviation of returns for each company and the market index. Provide a summary of these results in a table format in your report. Are these results consistent with the risk/return relationship as described in finance theory?
2. 2-Using your answers to Question 1, above, and assuming that investors can only invest in one of the two alternative shares in Exhibit 1, use the average return and standard deviation to determine which share would be the most appealing to a risk-averse investor. Provide numerical justification for your selection based on the coefficient of variation. When you answer this question, also address what finance theory assume around investor preferences for risk and return with a focus on risk aversion. What are the annual return prediction intervals for each stock and the market for the next period? What does this measure tells us about the variation of returns for the market and each share?
3. 3-Calculate the correlation coefficient between the 2 stocks. Provide a detailed explanation of your answer and the specific implications for diversification.

Exhibit 1 - Monthly Values for the Market Index and the Two Traded Shares.

Month	Market Index (points)	Hydro Ltd ($)	Luna Ltd ($)
1	5745	21.00	0.56
2	5976	23.55	0.66
3	6057	21.99	0.71
4	6167	23.70	0.90
5	6147	23.90	0.90
6	6117	24.65	0.95
7	5869	24.06	0.93
8	6072	26.82	1.00
9	6124	30.04	1.10
10	6290	30.90	1.15
11	6366	31.59	1.48
12	6427	28.44	1.66
13	6325	26.50	1.46
14	5913	23.66	1.31
15	5749	21.84	1.49
16	5709	24.63	1.52
17	5937	24.62	1.50
18	6252	24.51	1.50
19	6261	26.08	1.57
20	6418	29.12	1.55
21	6491	30.72	1.61
22	6699	30.65	1.57
23	6896	29.75	1.62
24	6698	30.60	1.57
25	6800	31.62	1.85
26	6772	33.92	1.91
27	6948	33.67	1.97
28	6802	36.20	1.98
29	7121	33.11	2.23
30	6501	21.35	2.05
31	5342	25.49	2.02
32	5625	25.72	1.99
33	5933	25.50	1.93
34	6031	26.18	1.93
35	6078	28.37	1.94
36	6245	29.97	1.85
37	6178	28.63	1.78
38	6256	32.06	1.75
39	6742	31.00	2.19
40	6850	31.06	2.40
41	6895	30.36	2.29
42	6955	34.35	2.17
43	7080	37.17	2.15
44	7320	41.05	2.06
45	7450	43.09	1.92
46	7611	41.64	2.10
47	7723	45.67	2.13
48	7897	46.95	2.19
49	7689	46.68	2.20
50	7712	44.11	2.20
51	7658	43.57	2.14
52	7802	40.35	2.20
53	7793	37.27	2.26
54	7315	36.70	2.18
55	7824	33.66	2.19
56	7789	33.79	2.29
57	7724	34.38	2.34
58	7455	35.30	2.25
59	7360	36.25	2.33
60	7477	36.44	2.25