1. A quantitative analyst is examining two luxury goods stocks VuittonPlc and FerrariPlc. The average return on VuittonPlc is 24% with an associated standard deviation of 2.25%. The average return on FerrariPlc is 20% with an associated standard deviation of 4%. The correlation coefficient between the stocks is 0.75.
2. Estimate the average risk and return of a portfolio which contains 50% in VuittonPlc and 50%

in Ferrari Plc? (6 marks)

1. Comment on your results, considering whether diversification 'worked' to reduce risk.
2. Set out the efficient frontier for the two-stock portfolio (at least 4 points on the efficient frontier

should be included on the diagram). Comment on your results.

Let's assume you are presented with five groups of data which are independent of each other, and each drawn from normally distributed independent populations. You have been asked to examine if there is a statistical difference in the means of the five groups. Assume a level of significance of 1%. In this instance which is preferred, setting out an ANOVA or carrying out multiple two sample independent t tests? Set out the implications with detailed consideration of the levels of Type I error in testing.

Answer rating: 100% (QA)

Portfolio Risk and Return Estimation To estimate the average risk and return of a portfolio containi... View the full answer