Individual Assignment
Part I: According to the data of Nike, Inc. and Timberland Bancorp, Inc. from December 2008 to December 2013 showed by the attached excel, the annualized expected return, standard deviation and correlation of the two stocks are calculated and revealed.
Using the result of the closing price minus the opening price to divide by the opening price can figure out the monthly returns during the 5 years in order to obtain the average monthly return. Then, the average monthly return time 12 months that can lead to the annualized return. Afterwards, the standard deviation applies the formula σ=√(∑_(i=1)^n▒〖P_i [R_i-〖E(R)]〗^2 〗) to get the consequence which is required to multiply 12 months to get the annualized …show more content…
Minimum variance portfolio is described as a style of well-diversified portfolio combining the stocks which are standing on the individual foundation and thinking about the venture but a much lower risk level is accomplished with getting an expected return.
It can be noticed that the minimum variance portfolio point M is labeled in the graph of the attached excel part I (d). From the valuation of the minimum variance portfolio using the equation and the weights of two stocks that counted in (c), the expected return is 25% and the standard deviation (risk) 24%. A high return always takes with a high …show more content…
Basing on the efficient frontier MA shows that it is possible to reduce the standard deviation (risk) via the combination of the two stocks as a portfolio. The standard deviation result of the portfolio in the attached excel (d) reveals a lower rate than original risk within Nike and Timberland respectively. In the other writing, the portfolio of the two stocks takes with a lower risk. Subsequently, the expected return also has a change in the portfolio. The expected return of the minimum variance portfolio is slightly lower than Nike but it is still distinctly upper than Timberland. Referring to the theory, the expected return of the portfolio with the lower risk generally cannot be larger than the available stock which carries with the highest return. Therefore, the portfolio of the two stocks carries a lower risk but still undertake a rational expected return for the
Part I: According to the data of Nike, Inc. and Timberland Bancorp, Inc. from December 2008 to December 2013 showed by the attached excel, the annualized expected return, standard deviation and correlation of the two stocks are calculated and revealed.
Using the result of the closing price minus the opening price to divide by the opening price can figure out the monthly returns during the 5 years in order to obtain the average monthly return. Then, the average monthly return time 12 months that can lead to the annualized return. Afterwards, the standard deviation applies the formula σ=√(∑_(i=1)^n▒〖P_i [R_i-〖E(R)]〗^2 〗) to get the consequence which is required to multiply 12 months to get the annualized …show more content…
Minimum variance portfolio is described as a style of well-diversified portfolio combining the stocks which are standing on the individual foundation and thinking about the venture but a much lower risk level is accomplished with getting an expected return.
It can be noticed that the minimum variance portfolio point M is labeled in the graph of the attached excel part I (d). From the valuation of the minimum variance portfolio using the equation and the weights of two stocks that counted in (c), the expected return is 25% and the standard deviation (risk) 24%. A high return always takes with a high …show more content…
Basing on the efficient frontier MA shows that it is possible to reduce the standard deviation (risk) via the combination of the two stocks as a portfolio. The standard deviation result of the portfolio in the attached excel (d) reveals a lower rate than original risk within Nike and Timberland respectively. In the other writing, the portfolio of the two stocks takes with a lower risk. Subsequently, the expected return also has a change in the portfolio. The expected return of the minimum variance portfolio is slightly lower than Nike but it is still distinctly upper than Timberland. Referring to the theory, the expected return of the portfolio with the lower risk generally cannot be larger than the available stock which carries with the highest return. Therefore, the portfolio of the two stocks carries a lower risk but still undertake a rational expected return for the