Minimum Variance Portfolios

Monthly price data can be obtained for securities at a number of online sources. A good source is finance.yahoo.com. (Look for the "Historical Prices" tab once you enter ticker symbol of the firm you choose.)

1. Download 10 years of monthly price data for two different stocks.

2. Calculate the annualized mean return and annualized standard deviation of the monthly returns and the correlation coefficient of the returns on the two stocks.

3. Calculate the investment opportunity set composed of these two stocks. Plot the investment opportunity set.

4. What are the weights of each of these stocks in the minimum-variance portfolio?

5. Compute the expected return and standard deviation of the minimum-variance portfolio.

6. Describe the minimum-variance portfolio versus another one you might suggest for your client, why do you suggest another portfolio, or not?