Question 2

Mr. Kahn had $100,000 in his account. Using this fund, he made a portfolio of two stocks- Microsoft Inc. (MSFT) and Tesla Inc. (TSLA) on 01 Jan 2020 in the ratio of 60:40, i.e. 60% funds in MSFT & 40% funds in TSLA.

The daily stock data of both stocks is attached herewith for reference.

https://docs.google.com/spreadsheets/d/1yHB2K8UUAi39t8cd8w4slsh-4sGKukYrNE48iJSh40Y/edit?usp=sharing

Using the stock data of the two stocks, you are required to compute the following:

a.Annual return of both MSFT and TSLA.

b.Annualized standard deviation of returns of both MSFT and TSLA.

c.Correlation coefficient of returns of MSFT and TSLA. What does this correlation coefficient signify about the correlation of the two stocks?

d.Portfolio return of the portfolio of two stocks.

e.Portfolio risk (standard deviation) of the portfolio of two stocks.

f.What do you infer from the portfolio risk and return so computed? Is there a better way to form a portfolio of these two stocks which will give higher returns with a lesser total risk?