Return and Risk Parameters

Go to http://moneycentral.msn.com and click on the "Investing" tab. Look for "Stocks" on the left side menu, and click on the submenu "Quotes, Charts, News". Enter the symbol FRNT and select Chart from the drop-down menu. When you click "Go" you'll see a chart of Frontier Airlines' stock price.

Scroll down to where you can enter a custom date range and enter the dates that span the most recent year. Specify weekly data, then click the link to get the price history table. Download the file using the button provided and open it in Excel. Repeat the process for LUV, DELL, and TGT.

1. Calculate the weekly returns for all of the stocks using closing prices. Merge the returns for the four firms into a single Excel workbook. Be sure that the companies' returns are properly aligned according to date.
2. Using the Excel functions, calculate the average return and standard deviation for each of the firms.
3. Using the Correlation function or the Data Analysis Tool, construct the correlation matrix for the stocks using the weekly returns for the entire period.
4. Which pair of firms has the highest correlation coefficient? Which pair has the lowest? Do these results make sense?

Minimum Variance Portfolios

There are some free online tools that will calculate the optimal asset weights and draw the efficient frontier for the assets that you specify. One of the sites is www.investorcraft.com/PortfolioTools/EfficientFrontier.aspx.

Go to this site and enter at least 8 assets in the selection box. You can search for the companies by name or by symbol. Click on the "Next Step" button and select one of the time spans offered. Specify an appropriate risk-free rate, a minimum allowable asset weight of 0 and a maximum allowable asset weight of 100. Click on "Calculate" to get your results.

1. What are the expected return and the standard deviation of the portfolio based on adjusted weights?
2. How do they compare to those for the optimal portfolio and the minimum variance portfolio?
3. Of the three portfolios shown, with which one would you feel most comfortable as an investor?