Large market capitalisation stocks from Yahoo Finance

1. Individual assignment (40%)              (Word limit: 2,500 words ± 10%)

This assessment aims to provide students with an opportunity to analyse various investment alternatives based on the respective risk and return so as to choose the most appropriate investment opportunity. You are expected to read beyond textbooks and able to apply the knowledge gain from real life examples either from your working environment or/and case studies read, and are able to demonstrate your competence in the areas indicated in the questions. You are encouraged to provide specific in-depth comments instead of general comments.

You will need to write up to 2,500 words (± 10%) to address all the questions.

Instructions to students:

1. Download most recent 5-years of monthly stock price history for two large market capitalisation stocks from Yahoo Finance (click the Investing tab followed by the Historical Prices tab).  Create a time series of monthly returns from this time series of monthly stock prices. Calculate the annualised mean return, standard deviation and correlation of the stocks.
2. Use investment proportions for the two stocks ranging from zero to 100% using intervals of 10%. Tabulate and draw the investment opportunity set of the two stocks
3. Calculate the weights on the minimum variance portfolio consisting of the two stocks, which we denote by stock X and stock Y, using the following formulae

1. Calculate the expected return and standard deviation of this minimum variance portfolio. Plot the two assets and the minimum variance portfolio on a diagram and plot the efficient frontier consisting of portfolios made up of these two assets.
2. Discuss diversification referring to the expected return and standard deviation of the minimum-variance portfolio in your answer.
3. Write a 2,500 words (± 10%) word report. Include in your report an introduction, a method section, a results section and conclusions.