Part 2 Risk and return You are considering an investment in the stock market and have...

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Finance

Part 2
Risk and return You are considering an investment in the stockmarket and have identified two potential stocks, they are WestpacBanking Corp. (ASX: WBC) and Singapore Airlines Ltd. (SGX: C6L).The historical prices for the past 10 years are shown in the tablebelow
Year
ASX: WBC
SGX: C6L
2009
23.70
13.82
2010
22.85
14.76
2011
21.01
11.1
2012
27.85
10.99
2013
30.66
9.59
2014
34.23
12.65
2015
30.85
11.03
2016
31.71
9.9
2017
30.96
11.31
2018
24.55
9.65
1. Which stocks would you prefer to own? Wouldeveryone make the same choice? Explain your answer(s).
2. Calculate the correlation coefficient between thetwo stocks. Does it appear that a portfolio consisting of WBC andC6L would provide good diversification? Explain your answer(s).
3. Calculate the expected (annual) return if you owneda portfolio consisting of 50% in WBC and 50% in C6L. Would youprefer the portfolio to owning either of the stocks alone?

Answer & Explanation Solved by verified expert

3.7 Ratings (540 Votes)

1 WBC provides a return of 139 from 2009 to 2018 and the return C6L is 259 Since WBC provides positive returns for a 10 year period it is the preferred investment For See Answer

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Year	ASX: WBC	SGX: C6L
2009	23.70	13.82
2010	22.85	14.76
2011	21.01	11.1
2012	27.85	10.99
2013	30.66	9.59
2014	34.23	12.65
2015	30.85	11.03
2016	31.71	9.9
2017	30.96	11.31
2018	24.55	9.65