Question: 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
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 |
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