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Answer in your notebook:
a. Establish the Covariance-variance matrix for four assets. Based on the matrix write the formula
to calculate the variance of a portfolio with 4 assets.
b. Assume that the stock market is declining. What is the investment strategy you would choose?
Explain your choice by using a graph.
c. What are the components of the risk of the individual stock? How can we affect the risk?
Answer in Excel file:
- Use Amazon and Alibaba data to answer the following questions. Use the short way by using
an excel functions.
a. Calculate the monthly expected return for each stock.
b. Calculate the variance and the standard deviation of those returns for each stock.
c. According to your answers a & b, Do you have any preferences?
c. Calculate the covariance between the monthly returns of Amazon and Alibaba.
Explain the result.
d. Calculate the correlation coefficient between the monthly returns of Amazon and Alibaba.
Explain the result. Would you recommend investing in a portfolio of Amazon and Alibaba?
e. Create the covariance-variance matrix of the two assets.
f. Calculate the expected return and the standard deviation of returns for a portfolio with equal
investments in the two stocks.
| Date | Amazon Price | Date | BABA Price |
| 12/1/20 | 3256.929932 | 12/1/20 | 232.729996 |
| 11/1/20 | 3168.040039 | 11/1/20 | 263.359985 |
| 10/1/20 | 3036.149902 | 10/1/20 | 304.690002 |
| 9/1/20 | 3148.72998 | 9/1/20 | 293.980011 |
| 8/1/20 | 3450.959961 | 8/1/20 | 287.029999 |
| 7/1/20 | 3164.679932 | 7/1/20 | 251.020004 |
| 6/1/20 | 2758.820068 | 6/1/20 | 215.699997 |
| 5/1/20 | 2442.370117 | 5/1/20 | 207.389999 |
| 4/1/20 | 2474 | 4/1/20 | 202.669998 |
| 3/1/20 | 1949.719971 | 3/1/20 | 194.479996 |
| 2/1/20 | 1883.75 | 2/1/20 | 208 |
| 1/1/20 | 2008.719971 | 1/1/20 | 206.589996 |
| 12/1/19 | 1847.839966 | 12/1/19 | 212.100006 |
| 11/1/19 | 1800.800049 | 11/1/19 | 200 |
| 10/1/19 | 1776.660034 | 10/1/19 | 176.669998 |
| 9/1/19 | 1735.910034 | 9/1/19 | 167.229996 |
| 8/1/19 | 1776.290039 | 8/1/19 | 175.029999 |
| 7/1/19 | 1866.780029 | 7/1/19 | 173.110001 |
| 6/1/19 | 1893.630005 | 6/1/19 | 169.449997 |
| 5/1/19 | 1775.069946 | 5/1/19 | 149.259995 |
| 4/1/19 | 1926.52002 | 4/1/19 | 185.570007 |
| 3/1/19 | 1780.75 | 3/1/19 | 182.449997 |
| 2/1/19 | 1639.829956 | 2/1/19 | 183.029999 |
| 1/1/19 | 1718.72998 | 1/1/19 | 168.490005 |
| 12/1/18 | 1501.969971 | 12/1/18 | 137.070007 |
| 11/1/18 | 1690.170044 | 11/1/18 | 160.860001 |
| 10/1/18 | 1598.01001 | 10/1/18 | 142.279999 |
| 9/1/18 | 2003 | 9/1/18 | 164.759995 |
| 8/1/18 | 2012.709961 | 8/1/18 | 175.009995 |
| 7/1/18 | 1777.439941 | 7/1/18 | 187.229996 |
| 6/1/18 | 1699.800049 | 6/1/18 | 185.529999 |
| 5/1/18 | 1629.619995 | 5/1/18 | 198.009995 |
| 4/1/18 | 1566.130005 | 4/1/18 | 178.539993 |
| 3/1/18 | 1447.339966 | 3/1/18 | 183.539993 |
| 2/1/18 | 1512.449951 | 2/1/18 | 186.139999 |
| 1/1/18 | 1450.890015 | 1/1/18 | 204.289993 |
| 12/1/17 | 1169.469971 | 12/1/17 | 172.429993 |
| 11/1/17 | 1176.75 | 11/1/17 | 177.080002 |
| 10/1/17 | 1105.280029 | 10/1/17 | 184.889999 |
| 9/1/17 | 961.349976 | 9/1/17 | 172.710007 |
| 8/1/17 | 980.599976 | 8/1/17 | 171.740005 |
| 7/1/17 | 987.780029 | 7/1/17 | 154.949997 |
| 6/1/17 | 968 | 6/1/17 | 140.899994 |
| 5/1/17 | 994.619995 | 5/1/17 | 122.459999 |
| 4/1/17 | 924.98999 | 4/1/17 | 115.5 |
| 3/1/17 | 886.539978 | 3/1/17 | 107.830002 |
| 2/1/17 | 845.039978 | 2/1/17 | 102.900002 |
| 1/1/17 | 823.47998 | 1/1/17 | 101.309998 |
| 12/1/16 | 749.869995 | 12/1/16 | 87.809998 |
| 11/1/16 | 750.570007 | 11/1/16 | 94.019997 |
| 10/1/16 | 789.820007 | 10/1/16 | 101.690002 |
| 9/1/16 | 837.309998 | 9/1/16 | 105.790001 |
| 8/1/16 | 769.159973 | 8/1/16 | 97.190002 |
| 7/1/16 | 758.809998 | 7/1/16 | 82.480003 |
| 6/1/16 | 715.619995 | 6/1/16 | 79.529999 |
| 5/1/16 | 722.789978 | 5/1/16 | 82 |
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