Suppose that you are considering investing in only two companies, HPC Plc and MAC Plc. Their returns for the recent five years are as follows: Year Return on HPC Plc (%) Return on MAC Plc (%)
(a) Calculate the expected return and standard deviation to the nearest percentage of both HPC and MAC.
(b) Calculate the coefficient of correlation between the return of HPC and MAC. Interpret the meaning of it.
(c) Draw the Efficient Frontier and determine the minimum-variance portfolio. Note that the portfolio weights should range from 0 to 1 by the increment of 0.2.
(d) In relation to this question explain the concept of risk diversification.
