 |  Investments, 4th Canadian Edition, 4/e Zvi Bodie,
Boston University School of Management
Alex Kane,
University of California, San Diego
Alan Marcus,
Boston College
Stylianos Perrakis,
Concordia University
Peter Ryan,
University of Ottawa
Portfolio Selection
S&P Projects| Prepared by William Lim, University of New Brunswick. Correlation and Diversification Pick two companies in the same industry, e.g., Enbridge Inc. (ENB) and TransCanada Pipelines Ltd. (TRP). Using the monthly closing prices, calculate the return each month for the past year. Then calculate the correlation between their returns. Using one of these two companies, calculate the correlation between that company and a company in another industry, say Nortel Networks Corp. (NT). Is the benefit of diversification greater between the companies within the same industry or companies in different industries? Why? Minimum Variance Portfolio Using the monthly closing prices for Manulife Financial Corp. (MFC) and Big Rock Brewery Ltd. (BEERF) over the past twelve months, calculate the return each month for the past year. Using these returns, calculate the average return, standard deviation and correlation of returns between the two securities. Is there a minimum variance portfolio with non-negative weights in each of these two securities? Notes: - Click on “Company” in the Market Insight home page to access the ticker box.
- Enter the ticker into the ticker box. Note that these tickers correspond to the listing in the New York Stock Exchange, not the Toronto Stock Exchange.
- The share prices are given in U.S. dollars, not Canadian dollars.
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2003 McGraw-Hill Higher Education