You are considering an investment in the stock market and have identified two potential stocks, they...

  

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You are considering an investment in the stock market and have identified two potential stocks, they are Rio Tinto (NYSE: RIO) and Amazon (NASDAQ: AMZN). The historical prices for the past 10 years are shown in the table below. + Year Rio Tinto Amazon 2010 48.51 125.41 2011 69.48 169.64 2012 60.46 194.44 2013 56.47 264.27 2014 53.15 358.69 2015 44.13 354.53 2016 24.65 587.00 2017 44.79 823.48 2018 56.11 1450.89 1. (5 marks) Which stocks would you prefer to own? Would everyone make the same choice? Explain your answer(s). 2. (8 marks) Calculate the correlation coefficient between the two stocks. Does it appear that a portfolio consisting of RIO and AMZN would provide good diversification? Explain your answer(s). 3. (7 marks) Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 80% in AMZN and 20% in RIO. You are considering an investment in the stock market and have identified two potential stocks, they are Rio Tinto (NYSE: RIO) and Amazon (NASDAQ: AMZN). The historical prices for the past 10 years are shown in the table below. + Year Rio Tinto Amazon 2010 48.51 125.41 2011 69.48 169.64 2012 60.46 194.44 2013 56.47 264.27 2014 53.15 358.69 2015 44.13 354.53 2016 24.65 587.00 2017 44.79 823.48 2018 56.11 1450.89 1. (5 marks) Which stocks would you prefer to own? Would everyone make the same choice? Explain your answer(s). 2. (8 marks) Calculate the correlation coefficient between the two stocks. Does it appear that a portfolio consisting of RIO and AMZN would provide good diversification? Explain your answer(s). 3. (7 marks) Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 80% in AMZN and 20% in RIO.