Question

Markowitz Efficiency Homework

Using the daily returns associated with a portfolio of stocks that consist of Cisco and General Electric, construct a risk-return tradeoff curve. Please include all calculations required, and a diagram of the curve. Note that the 16 daily closing prices for each security will provide you with 15 daily returns. For our purposes an arithmetic average is sufficient. Further, be sure and identify at least five points on the curve; the coordinates of the two endpoints, and three points between these endpoints. Please use Excel in solving this problem

Date		CSCO		GE
12/6/13		21.79		37.75
12/7/13		21.16		37.15
12/10/13		20.74		36.8
12/11/13		20.78		36.79
12/12/13		20.5		37.05
12/13/13		19.01		37.05
12/14/13		19.39		37.65
12/17/13		19.26		38.3
12/18/13		19.62		39.72
12/19/13		19.35		40.78
12/20/13		18.29		40.84
12/21/13		18.19		41.35
12/24/13		18.11		41.13
12/26/13		18.24		40.55
12/27/13		18.49		40.95
12/28/13		18.54		40.73
12/31/13		18.11		40.08

Answer 1

Date	CSCO	GE	% Ret CSCO	%Ret GE	Monthly Rp	CSCO	GE	Rp	SD
12-06-13	21.79	37.75
12-07-13	21.16	37.15	-2.89%	-1.59%	-2.24%	0.00%	100.00%	0.39%	1.49%
12-10-13	20.74	36.8	-1.98%	-0.94%	-1.46%	10.0%	90.00%	0.24%	1.43%
12-11-13	20.78	36.79	0.19%	-0.03%	0.08%	20.0%	80.00%	0.09%	1.42%
12-12-13	20.5	37.05	-1.35%	0.71%	-0.32%	30.0%	70.00%	-0.07%	1.44%
12/13/13	19.01	37.05	-7.27%	0.00%	-3.63%	40.0%	60.00%	-0.22%	1.51%
12/14/13	19.39	37.65	2.00%	1.62%	1.81%	50.0%	50.00%	-0.37%	1.61%
12/17/13	19.26	38.3	-0.67%	1.73%	0.53%	60.0%	40.00%	-0.52%	1.74%
12/18/13	19.62	39.72	1.87%	3.71%	2.79%	70.0%	30.00%	-0.67%	1.89%
12/19/13	19.35	40.78	-1.38%	2.67%	0.65%	80.0%	20.00%	-0.82%	2.06%
12/20/13	18.29	40.84	-5.48%	0.15%	-2.67%	90.0%	10.00%	-0.97%	2.24%
12/21/13	18.19	41.35	-0.55%	1.25%	0.35%	100.0%	0.00%	-1.12%	2.44%
12/24/13	18.11	41.13	-0.44%	-0.53%	-0.49%
12/26/13	18.24	40.55	0.72%	-1.41%	-0.35%
12/27/13	18.49	40.95	1.37%	0.99%	1.18%
12/28/13	18.54	40.73	0.27%	-0.54%	-0.13%
12/31/13	18.11	40.08	-2.32%	-1.60%	-1.96%
		Mean	-1.12%	0.39%
		Variance	0.06%	0.02%
		Std Deviation	2.44%	1.49%
		Correlation	0.293735009
		Portfolio	50%	50%
		Rp	-0.37%
		S.D	1.61%		1.64%

The mean has been calculated by using the formula for average in excel

The variance has also been calculated by the formula in excel

The std deviation has also been calculated by the formula in excel

correlation coeff has been found out the respective formula for correlation in excel

Assumptions

The respective monthly weights of both the stocks have been assumed hypothetically for making the graph