Part 2 (25 marks) Risk and return You are considering an investment in the stock market and have identified three potential stocks, they are Crown (ASX: CWN), Tencent (HKG: 0700) and Commonwealth Bank (ASX: CBA). The historical prices for the past 10 years are shown in the table below. Assume no dividend is distributed during this period. Year Crown Tencent Commonwealth (CBA) 2010 7.76 29.04 53.63 2011 8.57 40.40 52.15 2012 8.09 37.94 50.39 2013 11.59 54.28 64.10 2014 16.68 108.70 73.83 + 2015 13.61 132 88.85 2016 12.27 144.90 78.67 2017 11.4 204.40 31.66 2018 13.25 463.60 78.87 2019 11.95 346 69.91 + 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) Crown and Tencent and (b) Tencent and CBA. 4. (3 marks) Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 50% in Crown and 50% in Tencent. 5. (3 marks) Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 40% in CBA and 60% in Tencent. 6. (4 marks) Which portfolio (parts 4 or 5) provides better diversification? Explain your answer(s)