# ENMB3726 Measures of historical return and risk for each of the four indices above. Which index performed best over the last 12 months?

Question 1

1.1 Which of the four portfolio(s) in Table 1 is(are) on the best-possible CAL? Also include an Illustration (i.e. draw separate CALs for each portfolio) to help explain your answer.

1.2 Use the information in Table 1 to calculate the following:

• Covariance between portfolios A and B.
• Covariance between portfolios C and D.
• Historical return of a portfolio consisting of 60% in Portfolio A and 40% in portfolio B.
• Historical return of a portfolio consisting of 30% in Portfolio C and 70% in portfolio D.
• Use the “Markowitz formula” to calculate the historical standard deviation of a portfolio consisting of 60% in Portfolio A and 40% in Portfolio B. Call it portfolio X.
• Use the “Markowitz formula” to calculate the historical standard deviation of a portfolio consisting of 30% in Portfolio C and 70% in Portfolio D. Call it portfolio Y.
• Would portfolio X or portfolio Y be the better investment choice based on the historical data used? Explain in detail.
• Suppose you have a 3-asset portfolio (portfolio P) that is invested 25% in Asset 1, 60% in Asset 2 and 15% in Asset 3. Use the table below to calculate the expected return, expected standard deviation and expected coefficient of variation of your portfolio P.

Question 2

2.1 Measures of historical return and risk for each of the four indices above. Which index performed best over the last 12 months?

2.2 Suppose you are allowed to only invest in the ALSI index and one other index in the table above for the next 12-month period. Use the measures of covariance and correlation to explain which index would probably be the best option to choose.

2.3 Using the table above, calculate the historical return and standard deviation of a portfolio consisting of 2.3.1 60% in the ALSI and 40% in the Shanghai index. 2.3.2 60% in the ALSI and 40% in the Euronext index. 2.3.3 60% in the ALSI and 40% in the Nikkei index.

2.4 Do your answers in question 2.3 support the answer you gave in question 2.2 above? Explain. 