Question

You are considering investing in Australian shares and decide to investigate the shares of two Australian companies: Woodside Petroleum Ltd (WPL.AX) and Commonwealth Bank of Australia (CBA.AX).

Below are the opening prices, closing prices and dividends paid for WPL Ltd and CBA for the financial year 2018-2019.

Company	WPL		CBA
Month	Opening Price	Closing Price	Opening Price	Closing Price
Jul 2018	35.63	36.14	72.70	74.79
Aug 2018	36.00	36.87	74.38	71.24
Sep 2018	37.00	38.58	71.24	71.41
Oct 2018	38.44	34.85	71.13	69.23
Nov 2018	34.79	31.06	69.30	71.23
Dec 2018	31.30	31.32	72.06	72.39
Jan 2019	31.32	34.32	72.39	69.91
Feb 2019	34.25	36.25	69.23	73.95
Mar 2019	36.10	34.62	73.95	70.64
Apr 2019	34.65	35.39	71.00	74.52
May 2019	35.39	35.42	74.81	78.51
Jun 2019	34.50	36.36	78.06	82.78

WPL		CBA
Date	Dividend	Date	Dividend
23/08/2018	0.728022	15/08/2018	2.31
22/02/2019	1.27059	13/02/2019

Construct the minimum variance portfolio (MVP) comprising of only WPL and CBA and calculate the risk (standard deviation) and return of this minimum variance portfolio. (Hint: To calculate return of MVP you need annual holding period returns of the shares.)

Answer 1

Month	Opening Price	Closing Price	Opening Price	Closing Price		Returns WPL	Returns CBA	PORTFOLIO Rtns
Jul-18	35.63	36.14	72.7	74.79
Aug-18	36	36.87	74.38	71.24		2%	-5%	-1%
Sep-18	37	38.58	71.24	71.41		5%	0%	2%
Oct-18	38.44	34.85	71.13	69.23		-10%	-3%	-6%
Nov-18	34.79	31.06	69.3	71.23		-11%	3%	-4%
Dec-18	31.3	31.32	72.06	72.39		1%	2%	1%
Jan-19	31.32	34.32	72.39	69.91		10%	-3%	3%
Feb-19	34.25	36.25	69.23	73.95		6%	6%	6%
Mar-19	36.1	34.62	73.95	70.64		-4%	-4%	-4%
Apr-19	34.65	35.39	71	74.52		2%	5%	4%
May-19	35.39	35.42	74.81	78.51		0%	5%	3%
Jun-19	34.5	36.36	78.06	82.78		3%	5%	4%
Average		0.24%	1.01%	0.62%
St. Dev		5.98%	4.10%	3.84%
Variance		0.003573	0.001684	0.001474
CoVariance		0.00032
Portfolio Risk and Return					Wgt WPl^2*VarWPL+wgtCBA^2+VarCBA+2Wht,WPL,BBA*CoVar (WPL,CBA)
Wieght WPL %		0.5		0
Wieght CBA %		0.5		0.5
Exp. Port. Retruns3erns		0.006245		0.006245
Exp. Port. Variance		0.001474		0.000421
Minimum Portfoilio Variance				0.000421

Please excuse my fat finger. The Solver in Excel seems to needs to be debugged. I noticed it after posting. I am posting a table that would make the ratios of WPL and CBA clearer.: It the same: Wish you the best for 2020

WPL	CBA	Average	Volatity	Returns
100%	0%	0.238%	6.49%	0.24%
90%	10%	0.315%	5.91%	0.32%
80%	20%	0.393%	5.35%	0.39%
70%	30%	0.470%	4.85%	0.47%
60%	40%	0.547%	4.40%	0.55%
26%	74%	0.810%	3.65%	0.81%
16%	84%	0.888%	3.72%	0.89%
6%	94%	0.965%	3.93%	0.96%
-4%	104%	1.042%	4.25%	1.04%
-14%	114%	1.119%	4.66%	1.12%
-24%	124%	1.197%	5.14%	1.20%