From Yahoo finance, download daily stock price information from December 2000 to December 2022 for two stocks (Ford Motor Company (F) and Toyota Motor Corporation (TM).)

(a) Calculate monthly stock returns for both stocks from January 2001 to December 2022. All questions below are based on monthly returns.

(b) Calculate the correlation between rF and rTM. Based on your results, are these two stocks highly correlated or not correlated? Explain.

(c) Calculate the Sharpe ratios for both F and TM, respectively. (Assume the monthly risk-free rate, rf, is 0.5%.)

(d) Find the variance-covariance matrix for these two stocks.

(e) By hand, find the minimum variance portfolio consists of F and TM (i.e., portfolio weights for F and TM and the resulting portfolio standard deviation). (Assume the monthly risk-free rate, rf, is 0.5%. You can use past average returns as expected future returns for this question.)

(f) Repeat (e) above using Excel.

(g) Use Excel to find the optimal risky portfolio (i.e., portfolio weights for F and TM and the resulting portfolio standard deviation and Sharpe ratio). (Assume the monthly risk-free rate, rf, is 0.5%. You can use past average returns as expected future returns for this question.)

(h) Use F & TM as examples and explain to your investors why they should diversify.