Question: Part 2 (25 marks) Risk and return You are considering an investment in the stock market and have identified three potential stocks, they are Shanghai

Part 2 (25 marks) Risk and return You are considering an investment in the stock market and have identified three potential stocks, they are Shanghai Fosun Pharmaceutical Group (HKG: 2196), China Petroleum & Chemical Corporation (HKG: 386) and National Australian Bank (ASX: NAB). The historical prices between 2013 and 2020 in the table below, note that these prices are recorded on the ist day of the year, for example, 1: of January 2020. Students assume no dividend is distributed during this period and ignore the exchange rate conversion. Year Fosun China Petroleum & Chemical National (HKG: 2196) (HKG: 386) Australian (ASX: NAB) 201: 11.62 7.24 26.10 2014 23.85 6.18 31.61 2015 28.0 6.13 33.87 2016 18.54 4.33 26.67 2017 25.9 6.21 30.33 2018 45.45 6.76 29.13 2019 23.85 6.57 23.86 2020 20.9 4.13 25.8 1. (6 marks ) Calculate the return and risk (standard deviation) of each stock. 2. (3 marks ) Explain the relation (positive or negative) between risk and return based on your answers in part (1). 3. (6 marks ) Calculate the correlation coefficient between (a) Fosun and China Petroleum and (b) China Petroleum and CBA. 4. (3 marks ) Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 50% in Fosun and 50% in China Petroleum. 5. (3 marks )

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