Below are a set of prices for Facebook (FB) and Southwest Airlines (LUV) over the last 3 months. Keep in mind that we normally would not calculate the below statistics for such a short time span, as your answers will be heavily skewed by recent market activity.
|
|
FB
|
LUV
|
|
12/1/16
|
115.05
|
49.84
|
|
1/1/17
|
130.32
|
52.31
|
|
2/1/17
|
135.54
|
57.80
|
|
3/1/17
|
137.42
|
58.88
|
a) Assume you invest 60% of your portfolio in FB and 40% in LUV. What is your annualized portfolio expected return?
b) Following from part (e), what is your annualized portfolio standard deviation?
c) In words, describe what would have happened to your response to part (f) if the correlation between FB and LUV the assets had been closer to 1.
d) Given the market performance and the performance of these two stocks over the last months, what type of risk would have been most responsible for generating the returns in your portfolio?