Opportunity to analyse various investment alternatives based on the respective risk, Singapore

Assignment Details:

The aim is 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 be able to apply the knowledge gained from real life examples either from your working environment and/or case studies 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.

Instructions to students:

Download stock prices for any two different companies – 5 years of monthly closing prices for each company. You can use any database to obtain the prices e.g. Bloomberg, yahoo finance (click the Investing tab followed by the Historical Prices tab) etc. Use data from December 2012 to December 2017 to generate average monthly returns. Calculate and report the annualized mean return, standard deviation and correlation of the stocks.

(5 marks)

Use investment proportions for the two stocks ranging from 0% to 100% using intervals of 5%. Tabulate the investment opportunity set of the two stocks. Plot the investment opportunity set of the two stocks.

(5 marks)

Calculate and report the weights on the optimal risky portfolio consisting of the two stocks, which we denote by stock 1 and stock 2.

 (5 marks)

Calculate the expected return and standard deviation of this optimal risky portfolio. Plot the optimal risky portfolio on the diagram determined in (b) above.

(5 marks)

Calculate the weights on the minimum variance portfolio consisting of the two stocks, which we denote by stock 1 and stock 2.

 (5 marks)

Calculate the expected return and standard deviation of this minimum variance portfolio (MVP). Plot the minimum variance portfolio on the same graph in (b) above. Identify the MVP and efficient frontier consisting of the portfolios made up of these two assets. Label them clearly on the graph.

(5 marks)

Discuss in your report diversification referring to the efficient frontier and comparing the expected return and standard deviation of the optimal risky portfolio to the minimum-variance portfolio in your answer.

The expected return of the portfolio is 1.39 this means that every dollar invested will make a profit of $0.39 .it is more risky to invest in the E-bay stocks than investing in the Amazon stocks.in general, investing in either of the stock will result in a loss because most of the values on the efficient frontier are negatives. The minimum variance portfolio is 0.0050904 as read from the graph.