Answer in your notebook:

a. Establish the Covariance-variance matrix for four assets. Based on the matrix write the formula

to calculate the variance of a portfolio with 4 assets.

b. Assume that the stock market is declining. What is the investment strategy you would choose?

Explain your choice by using a graph.

c. What are the components of the risk of the individual stock? How can we affect the risk?

Answer in Excel file:

1. Use Amazon and Alibaba data to answer the following questions. Use the short way by using

an excel functions.

a. Calculate the monthly expected return for each stock.

b. Calculate the variance and the standard deviation of those returns for each stock.

c. According to your answers a & b, Do you have any preferences?

c. Calculate the covariance between the monthly returns of Amazon and Alibaba.

Explain the result.

d. Calculate the correlation coefficient between the monthly returns of Amazon and Alibaba.

Explain the result. Would you recommend investing in a portfolio of Amazon and Alibaba?

e. Create the covariance-variance matrix of the two assets.

f. Calculate the expected return and the standard deviation of returns for a portfolio with equal

investments in the two stocks.

Date	Amazon Price	Date	BABA Price
12/1/20	3256.929932	12/1/20	232.729996
11/1/20	3168.040039	11/1/20	263.359985
10/1/20	3036.149902	10/1/20	304.690002
9/1/20	3148.72998	9/1/20	293.980011
8/1/20	3450.959961	8/1/20	287.029999
7/1/20	3164.679932	7/1/20	251.020004
6/1/20	2758.820068	6/1/20	215.699997
5/1/20	2442.370117	5/1/20	207.389999
4/1/20	2474	4/1/20	202.669998
3/1/20	1949.719971	3/1/20	194.479996
2/1/20	1883.75	2/1/20	208
1/1/20	2008.719971	1/1/20	206.589996
12/1/19	1847.839966	12/1/19	212.100006
11/1/19	1800.800049	11/1/19	200
10/1/19	1776.660034	10/1/19	176.669998
9/1/19	1735.910034	9/1/19	167.229996
8/1/19	1776.290039	8/1/19	175.029999
7/1/19	1866.780029	7/1/19	173.110001
6/1/19	1893.630005	6/1/19	169.449997
5/1/19	1775.069946	5/1/19	149.259995
4/1/19	1926.52002	4/1/19	185.570007
3/1/19	1780.75	3/1/19	182.449997
2/1/19	1639.829956	2/1/19	183.029999
1/1/19	1718.72998	1/1/19	168.490005
12/1/18	1501.969971	12/1/18	137.070007
11/1/18	1690.170044	11/1/18	160.860001
10/1/18	1598.01001	10/1/18	142.279999
9/1/18	2003	9/1/18	164.759995
8/1/18	2012.709961	8/1/18	175.009995
7/1/18	1777.439941	7/1/18	187.229996
6/1/18	1699.800049	6/1/18	185.529999
5/1/18	1629.619995	5/1/18	198.009995
4/1/18	1566.130005	4/1/18	178.539993
3/1/18	1447.339966	3/1/18	183.539993
2/1/18	1512.449951	2/1/18	186.139999
1/1/18	1450.890015	1/1/18	204.289993
12/1/17	1169.469971	12/1/17	172.429993
11/1/17	1176.75	11/1/17	177.080002
10/1/17	1105.280029	10/1/17	184.889999
9/1/17	961.349976	9/1/17	172.710007
8/1/17	980.599976	8/1/17	171.740005
7/1/17	987.780029	7/1/17	154.949997
6/1/17	968	6/1/17	140.899994
5/1/17	994.619995	5/1/17	122.459999
4/1/17	924.98999	4/1/17	115.5
3/1/17	886.539978	3/1/17	107.830002
2/1/17	845.039978	2/1/17	102.900002
1/1/17	823.47998	1/1/17	101.309998
12/1/16	749.869995	12/1/16	87.809998
11/1/16	750.570007	11/1/16	94.019997
10/1/16	789.820007	10/1/16	101.690002
9/1/16	837.309998	9/1/16	105.790001
8/1/16	769.159973	8/1/16	97.190002
7/1/16	758.809998	7/1/16	82.480003
6/1/16	715.619995	6/1/16	79.529999
5/1/16	722.789978	5/1/16	82