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You are considering an investment in the stock market and haveidentified two potential stocks, they are Westpac Banking Corp.(ASX: WBC) and Singapore Airlines Ltd. (SGX: C6L). The historicalprices for the past 10 years are shown in the table below.
in the table below.
Year | ASX: WBC | SGX: C6L |
2009 | 23.70 | 13.82 |
2010 | 22.85 | 14.76 |
2011 | 21.01 | 11.1 |
2012 | 27.85 | 10.99 |
2013 | 30.66 | 9.59 |
2014 | 34.23 | 12.65 |
2015 | 30.85 | 11.03 |
2016 | 31.71 | 9.9 |
2017 | 30.96 | 11.31 |
2018 | 24.55 | 9.65 |
1. Which stocks would you prefer to own? Wouldeveryone make the same choice? Explain your answer(s).
2. Calculate the correlation coefficient between thetwo stocks. Does it appear that a portfolio consisting of WBC andC6L would provide good diversification? Explain your answer(s).
3. Calculate the expected (annual) return if you owneda portfolio consisting of 50% in WBC and 50% in C6L. Would youprefer the portfolio to owning either of the stocks alone?
