Calculate the covariance for the returns of stock 1 and stock 2 given the six years of historical returns presented below:

(7 marks)

Given that the standard deviation of stock 1 and stock 2 in the table above is 0.2236 and 0.3225, respectively, use your answer in (A) to calculate and interpret the correlation between the 2 assets. (3 marks)

Based on the characteristics of NSC and JSE above you are considering forming a portfolio comprising the two stocks such that you invest the following amounts:

i. $40000 and $60000 in company NSC and JSE respectively in the first instance, and alternatively

ii. $70000 and $30000 in company NSC and JSE respectively. C. What is the expected return and standard deviation of the portfolio in the two instances above? (10 marks) What is the expected return and standard deviation of the portfolio in the two instances above?