You are considering an investment in the stock market and have identified two potential stocks (XYZ and ABC) to purchase The historical returns for the past five years are shown in the table below Year XYZ Returns ABC Returns 2010 12 35 22 28 2008 17 01 8 75 2009 13 18 17 78 2010 8 51 19 66 2014 16 85 4 03 Calculate the average return and standard deviation of returns for each stock over the past five years Which stock would you prefer to own Would everyone make the same choice Calculate the correlation coefficient between the two stocks Does it appear that a portfolio consisting of XYZ and ABC would provide good diversification Calculate the annual returns that would have been achieved had you owned a portfolio consisting of 50 in XYZ and 50 in ABC over the past five years Calculate the average return and standard deviation of returns for the portfolio How does the portfolio compare with the individual stocks Would you prefer the portfolio to owning either of the stocks alone Create a chart that shows how the standard deviation of the portfolios returns changes as the weight of XYZ changes Using the Solver, what is the minimum standard deviation that could be achieved by combining these stocks into a portfolio What are the exact weights of the stocks that result in this minimum standard deviation

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You are considering an investment in the stock market and have identified two potential stocks (XYZ and ABC) to purchase. The historical returns for the

You are considering an investment in the stock market and have identified two potential stocks (XYZ and ABC) to purchase. The historical returns for the past five years are shown in the table below.

Year	XYZ Returns	ABC Returns
2010	12.35%	22.28%
2008	17.01%	8.75%
2009	13.18%	17.78%
2010	8.51%	19.66%
2014	16.85%	4.03%

Calculate the average return and standard deviation of returns for each stock over the past five years. Which stock would you prefer to own? Would everyone make the same choice?
Calculate the correlation coefficient between the two stocks. Does it appear that a portfolio consisting of XYZ and ABC would provide good diversification?
Calculate the annual returns that would have been achieved had you owned a portfolio consisting of 50% in XYZ and 50% in ABC over the past five years.
Calculate the average return and standard deviation of returns for the portfolio. How does the portfolio compare with the individual stocks? Would you prefer the portfolio to owning either of the stocks alone?
Create a chart that shows how the standard deviation of the portfolios returns changes as the weight of XYZ changes.
Using the Solver, what is the minimum standard deviation that could be achieved by combining these stocks into a portfolio? What are the exact weights of the stocks that result in this minimum standard deviation?