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.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.

a$.$ 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?

b$.$ Calculate the correlation coefficient between the two stocks. Does it appear that a

portfolio consisting of XYZ and ABC would provide good diversification?

c$.$ 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.

d$.$ 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?

e$.$ Create a chart that shows how the standard deviation of the portfolio's returns

changes as the weight of XYZ changes.

f$.$ Using the Solver, what is the minimum standard deviation that could be achieved

by combining these stocks into a portfolio? What are the weights of the stocks

that result in this minimum standard deviation?

Year XYZ Returns ABC Returns

$20164\mathrm{.}60\%13\mathrm{.}79\%$

$20174\mathrm{.}56\%17\mathrm{.}23\%$

$20189\mathrm{.}69\%9\mathrm{.}76\%$

$201914\mathrm{.}74\%7\mathrm{.}35\%$

$20206\mathrm{.}29\%18\mathrm{.}40\%$

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 portfolio$$s 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 weights of the stocks that result in this minimum standard deviation?$$