Case Study 3

Below is the monthly share price data for Westpac Banking Corporation (ASX code WBC.AX) for 2021.

Month	Open $	Close $
Jan	19.37	21.13
Feb	20.80	23.82
Mar	23.87	24.41
Apr	24.42	24.98
May	25.71	26.42
June	26.29	25.81
July	25.94	24.52
Aug	24.65	25.82
Sep	25.63	26.00
Oct	25.61	25.67
Nov	24.50	20.52
Dec	20.50	21.35

Westpac paid a dividend of $0.58 per share on 13 May 2021 and a dividend of $0.60 per share on 5 November 2021

If the correlation between WBC shares and ANZ Bank shares is 0.9989, what level of diversification will you be able to achieve if you create a portfolio consisting of only these two shares? Explain with equations and graph. (Word limit 250 words) (5 marks)