A.The Data - Jan 2020 - 30 June 2020

Stock prices of listed companies could be downloaded using the 'investing.com or yahoo finance (6 months). You are required to choose 3 companies from different sectors It is advisable to pick companies from different sectors to diversify the portfolio.

B.The Risk Computation

You are required to demonstrate the computation of:

1.Stand -alone risk (variance and standard deviation of each stock's return)

2.The relationship between the stock and the market (correlation-coefficient, covariance and beta)

You are also required to explain and conclude your findings.

1.Measuring stand-alone risk: Variance and Standard Deviation

Variance:

Standard deviation:

(k subscript t) = the past rate of return in period t

(k bar subscipt t)= average annual return earned during the last n years.

2. Covariance,Cov

A measure of how two asset's returns move together and the size of those co-movements.

3. Correlation Coefficient, r

To measure the tendency of two variables to move together.

Eg;

In statistical terms, we say that the returns on Stocks W and M are perfectly negatively correlated, with r = -1 or perfect positive correlation, r = +1(points to ponder= diversification does nothing to reduce risk if the portfolio consists of perfectly positively correlated stocks)

4. Beta,

oror

5. DISCUSSION ON YOUR RESULT

Brief Background of companies

Each companies discuss result... Standard deviation and Beta

Discuss correlation among the companies.

Calculate required rate of return of each companies, using CAPM formula and assume risk free at 2.5%.