The past five years of stock returns for SCG and VCX are provided in the following table. The correlation between SCG and VCX is 0.54.

Year SCG VCX

2015 10.10% 9.60%

2016 9.90% 5.50%

2017 4.60% 15.30%

2018 -1.50% -4.30%

2019 7.80% 4.80%

A. What is the average annual return for SCG and VCX? (4 marks)

B. What is the standard deviation of return for SCG and VCX? (5 marks)

C. Which stock would you invest? Explain. (2 marks)

D. Given the expected return for SCG and VCX calculated in part (a), what would be your portfolio return and standard deviation if you invested 50% of your capital in SCG and the remaining 50% in VCX? (4 marks)

E. What if you increase your capital invested in SCG from 50% to 90%? What is your portfolio return and standard deviation? Is this more or less favourable? Explain.

(5 marks)