PORTFOLIO ASSIGNMENT Harvard Case Solution & Analysis

PORTFOLIO ASSIGNMENT Case Solution

Question 1

The basic summary statistics including the expected returns and the standard deviations of both the stocks has been computed in the excel spreadsheet, which are presented in the table below:

BASIC SUMMARY STATISTICS
Asset 1 Asset 2
Expected Returns 5.65% 5.75%
Variance 0.031% 0.474%
Standard Deviation 1.77% 6.88%
Covariance (1,2) -0.00076
Correlation (1,2) -0.55323

It could be seen that the returns of the second security are much higher as compared to the returns of the first security and its standard deviation is also higher. The co variance and correlation between both the securities is negative. A negative correlation of 55.32% shows that both the stocks move in the opposite direction. This is a moderate correlation.

Question 2
a)

The expected returns and the standard deviations for the range of the portfolio weights as provided have been calculated in the excel spreadsheet as shown in the table below:

PORTFOLIO STATISTICS

S.no Weights W1 W2 Portfolio Expected Returns Portfolio Standard Deviation
1 Weights -0.5 1.5 5.80% 10.90%
2 Weights -0.25 1.25 5.78% 8.89%
3 Weights 0 1 5.75% 6.88%
4 Weights 0.25 0.75 5.73% 4.90%
5 Weights 0.5 0.5 5.70% 2.97%
6 Weights 0.75 0.25 5.68% 1.36%
7 Weights 1 0 5.65% 1.77%
8 Weights 1.25 -0.25 5.63% 3.55%
9 Weights 1.5 -0.5 5.60% 5.51%

All the expected returns and the standard deviations have then been plotted on a graph which shows the following curve:.............

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