Assignment 2: Finding efficient set for of two stock

portfolios.

Necessary guidelines:
It is a group assignment. Maximum 5 members are allowed in a group.
You may use MS Excel for your calculation and graph. Manual
calculation and graph is also acceptable.
You can reach me at my office between 5-6:45 pm on every exam day
for any necessary clarifications regarding this assignment.
You need to submit this assignment by December 23,
2016. Online submission is also acceptable. My e-mail address
is: k.bari@aiub.edu. Please mention your course name, section
and assignment title at the e-mail subject for online
submission. DO NOT FORGET TO WRITE ALL OF YOUR NAME AND
Step: 1
Select any two Dhaka Stock Exchange listed companies of your choice. Collect
their daily price information starting from 2014.
Step: 2
Calculate daily return for these stocks.
Step: 3
Calculate average daily return and standard deviation of each stock.
Step: 4
Calculate Correlation coefficient of returns between these stocks.
Step: 5
Calculate expected returns and standard deviation of several portfolios
constructed by these stocks. Use the following table to summarize your results.
Weight of Weight of Average Standard
Stock A ( Stock B ( return deviation of
wA ) wB ) of portfolio ( portfolio ( P )
RP )
0% 100%
5% 95%
10% 90%
15% 85%
20% 80%
25% 75%
30% 70%
35% 65%
40% 60%
45% 55%
50% 50%
55% 45%
60% 40%
65% 35%
70% 30%
75% 25%
80% 20%
85% 15%
90% 10%
95% 5%
100% 0%
Step: 6
Draw a graph by plotting the standard deviation of these portfolios against the X-
axis and expected returns against the Y-axis and highlight the efficient set of
portfolios of these stocks.

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Note: Price information for all stocks are available at the Dhaka Stock
Exchange website data archive. All you need to do is to collect the price
from the website and do necessary calculations.

Necessary Formulas:

Price of day 1Priceof day 0

Returnof day 1, R1=
Price of day 0

Average Return , R=
R
T

Average Return of portfolio , R P=w A R A + w B R B

2
Variance of stock returns , 2
=
( RR)
T 1

Standard Deviation of stock returns , =Variance

Covariancebetween returnsof Stock AB , AB=

( R A R A )(RB R B)
T 1

AB
CorrelationCoefficient betweenreturns of Stock AB , AB=
AB

Standard deviationof two stock portfolio , P= w 2A 2A + w2B 2B +2 w A w B AB

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