CASE STUDY 1 (15%)

A wealthy investor, David, approaches your consulting firm seeking for investment advices. David plans to invest his RM1 million in the following 16 stocks traded on Bursa Malaysia:

1) Axiata Groups

2) CIMB Group Holdings

3) Digi.com

4) Genting Malaysia

5) Hong Leong Bank

6) IOI Corporation

7) Malayan Banking

8) Maxis

9) MISC

10) Petronas Gas

11) Public Bank

12) Sime Darby

13) Telekom Malaysia

14) Tenaga Nasional

15) UMW Holdings

16) YTL Corporation

Suppose David is considering allocating all his RM1 million in the 16 stocks equally. He would like to know the expected return and risk for this 16-stock portfolio. What is your advice if David expects a minimum return of 5%, but won't tolerate risk exceeding 3% (in standard deviation)?

Your analysis involves:

(i) calculate the monthly return for each stock;

(ii) calculate the mean of the monthly return for each stock;

(iii) calculate the variance of the monthly return for each stock;

(iv) construct the variance-covariance matrix;

(v) compute the 16-stock portfolio expected return

(vi) compute the 16-stock portfolio risk

The monthly closing prices of these 16 stocks over the sample period of January 2016- December 2019 are provided as below: