In the Excel sheet, you will see 3 columns – Year Month, Stock 1, and Stock 2. The number are returns (3.7782 for instance means 3.7782%). Report the following:

What is the average return on Stock 1 and Stock 2?

What is the standard deviation of Stock 1 and Stock 2?

What is the correlation between the two Stocks?

Next, you are going to consider a portfolio consisting of a fraction w1 in stock 1 and w2 = 1-w1 in stock 2.

Use the results above to calculate the average return and standard deviation of the portfolio when varying w1 between 0 and 4.

4. What is the minimum variance portfolio?

Consider a risk-free rate of 1% and assume that you can invest/borrow at the same rate.

5. Draw the efficient frontier when you can invest/borrow at the risk-free rate in addition to the two stocks above.

YearMonth	Stock 1	Stock 2
192607	3.7782	-0.4119
192608	-2.2074	-8.7275
192609	-6.2113	-0.2989
192610	-8.6241	-3.7532
192611	3.4744	6.6476
192612	13.9458	-1.9772
192701	0.4474	-8.2999
192702	2.4884	-0.3049
192703	6.3998	-1.7464
192704	5.8363	7.8111
192705	9.0109	9.0399
192706	-3.6452	12.1487
192707	24.4089	11.6607
192708	11.7732	3.7427

Answer rating: 100% (QA)

Average return on Stock 1 485 Standard deviation of Stock 1 1161 Correlation between Stock 1 and Sto... View the full answer