Steve is evaluating his portfolio performances. He currently has two stock (Stock A and Stock B) in his portfolio which he acquired 6 months ago. He notices that the correlation coefficient of her portfolio are almost perfectly positive thus he is considering to remove Stock B from his portfolio. Furthermore, stock B is continuously having a drop in its value. The potential replacement is Stock C.

Steve downloaded the last 5 days data of Stock C to help him make decision.

Date	Open	Close
1/7/2019	2.20	2.50
2/7/2019	2.50	3.00
3/7/2019	3.00	4.20
4/7/2019	4.20	3.78
5/7/2019	3.78	5.67

Steve also observes that his current portfolio is having the following information:

Rates of return (ri) (in %)

Date	Stock A	Stock B
1/7/2019	-	-
2/7/2019	10	-20
3/7/2019	5	-10
4/7/2019	20	5
5/7/2019	15	-5
Number of units owned	10,000	10,000

Given all the above information,

a) Find the covariance between Stock C and Stock A.

b) Find the correlation coefficient between Stock C and Stock A

c) Based on your answer in d), should Steve combine Stock C and A in his portfolio? Explain why?

d) Based on your previous answer, calculate Steves portfolio return on 6th July by assuming: The price of Stock A, B and C on 6th July is $7, $3 and $6 respectively. Steve can only purchase stock C by using the proceeds of selling stock B. Steve can only afford to have two stocks in his portfolio simultaneously.

e) Calculate the portfolio risk for the selected stock pairing

f) If Steve intends to hold the new portfolio for a year time, calculate her HPR after a year, assuming: i) The price of Stock A, B and C in a year time will be $5, $4 and $10 respectively ii) During the one-year period, Stock C paid $1 dividend for every unit while stock A paid $0.50 dividends per share during the same time period. Stock B did not pay any dividend.