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Risk and return You are considering an investment in the stock market and have identified three potential stocks, they are Crown (ASX: CWN), Tencent (HKG:

Risk and return

You are considering an investment in the stock market and have identified three potential stocks, they are Crown (ASX: CWN), Tencent (HKG: 0700) and Commonwealth Bank (ASX: CBA). The historical prices for the past 10 years are shown in the table below. Assume no dividend is distributed during this period.

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1. Calculate the return and risk (standard deviation) of each stock.

2. Explain the relation (positive or negative) between risk and return based on your answers in part (1).

3. Calculate the correlation coefficient between (a) Crown and Tencent and (b) Tencent and CBA.

Year 2010 2011 2012 2013 2014 2015 2016 2017 Crown 7.76 8.57 8.09 11.59 16.68 13.61 12.27 11.4 Tencent 29.04 40.40 37.94 54.28 108.70 132 144.90 204.40 463.60 346 Commonwealth (CBA) 53.63 52.15 50.39 64.10 73.83 88.85 78.67 81.66 78.87 69.91 2018 2019 13.25 11.95

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