Question
In: Finance
You are considering an investment in the stock market and have identified two potential stocks
Risk and return
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 year-end historical prices for the years 2010 to 2018 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. Which stocks would you prefer to own? Would every rational investor make the same choice? Explain your answer(s).
2. Calculate the covariance and 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. Calculate the expected (annual) return and standard deviation if you owned a portfolio consisting of 70% in AMZN and 30% in RIO.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
You are considering an investment in the stock market and have identified two potential stocks, they...
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. Which stocks would you prefer to
own? Would everyone...
You are considering an investment in the stock market and have identified three potential stocks, they...
You are considering an investment in the stock market and have
identified three potential stocks, they are Crown (ASX: CWN),
Tencent (HKG: 0700) and Commonwealth Bank (ASX: CBA). The
historical prices for the past 10 years are shown in the table
below. Assume no dividend is distributed during
this period.
Year
Crown
Tencent
Commonwealth (CBA)
2010
7.76
29.04
53.63
2011
8.57
40.40
52.15
2012
8.09
37.94
50.39
2013
11.59
54.28
64.10
2014
16.68
108.70
73.83
2015
13.61
132
88.85
2016...
Risk and return You are considering an investment in the stock market and have identified two...
Risk and return You are considering an investment in the stock
market and have identified two potential stocks, they are Westpac
Banking Corp. (ASX: WBC) and Singapore Airlines Ltd. (SGX: C6L).
The historical prices for the past 10 years are shown in the table
below.
Year
ASX:WBC
SGX:C6L
2011
23.70
13.82
2012
22.85
14.76
2013
21.01
11.1
2014
27.85
10.99
2015
30.85
11.03
2016
31.71
9.90
2017
30.96
11.31
2018
24.55
9.65
1. Which stocks would you prefer to own?...
Risk and return You are considering an investment in the stock market and have identified three...
Risk and return
You are considering an investment in the stock market and have
identified three potential stocks, they are Crown (ASX: CWN),
Tencent (HKG: 0700), and Commonwealth Bank (ASX: CBA). The
historical prices for the past 10 years are shown in the table
below. Assume no dividend is distributed during
this period.
Year
Crown
Tencent
Commonwealth (CBA)
2010
7.76
29.04
53.63
2011
8.57
40.40
52.15
2012
8.09
37.94
50.39
2013
11.59
54.28
64.10
2014
16.68
108.70
73.83
2015
13.61...
Risk and return You are considering an investment in the stock market and have identified three...
Risk and return
You are considering an investment in the stock market and have
identified three potential stocks, they are Crown (ASX: CWN),
Tencent (HKG: 0700) and Commonwealth Bank (ASX: CBA). The
historical prices for the past 10 years are shown in the table
below. Assume no dividend is distributed during
this period.
Year
Crown
Tencent
Commonwealth (CBA)
2010
7.76
29.04
53.63
2011
8.57
40.40
52.15
2012
8.09
37.94
50.39
2013
11.59
54.28
64.10
2014
16.68
108.70
73.83
2015
13.61...
Risk and return You are considering an investment in the stock market and have identified three...
Risk and return
You are considering an investment in the stock market and have
identified three potential stocks, they are Crown (ASX: CWN),
Tencent (HKG: 0700), and Commonwealth Bank (ASX: CBA). The
historical prices for the past 10 years are shown in the table
below. Assume no dividend is distributed during
this period.
Year
Crown
Tencent
Commonwealth (CBA)
2010
7.76
29.04
53.63
2011
8.57
40.40
52.15
2012
8.09
37.94
50.39
2013
11.59
54.28
64.10
2014
16.68
108.70
73.83
2015
13.61...
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