Two Stocks_Solved.

xlsx
Modeling Risk and Realities =(B5-$B$26)^2

Scenario Return on Stock A Return on Stock B Probability

1 -0.00024 0.0482 0.05
2 0.01760 -0.0047 0.05
3 -0.02114 0.0003 0.05
4 -0.01178 0.0022 0.05
5 -0.01515 0.0022 0.05
6 -0.00353 -0.0115 0.05
7 -0.01772 0.0462 0.05
8 -0.02345 0.0191 0.05
9 0.03562 -0.0168 0.05
10 0.03108 0.0251 0.05
11 0.01557 0.0278 0.05
12 0.00073 0.0067 0.05
13 -0.02188 0.0274 0.05
14 0.02063 0.0176 0.05
15 0.03044 -0.0122 0.05
16 0.01276 -0.0277 0.05
17 0.01214 -0.0634 0.05
18 0.00138 0.0100 0.05
19 -0.00507 -0.0379 0.05
20 0.01134 -0.0393 0.05

Expected R 0.0034668 0.0009641

Variance R 0.000326828 0.000789322
St. Dev. R 0.018078 0.028095 =SUMPRODUCT(D5:D24,H5:H24)

Expected Product of RA and RB -0.0001367147

Correlation between RA and RB -0.2757516325

=SQRT(B27) =(C30-B26*C26)/(B28*C28)

=SUMPRODUCT($D$5:$D$24,F5:F24)
=SUMPRODUCT($D$5:$D$24,B5:B24)
 =(C5- =B =SUMPRODUCT($F$31:$
=(B5-$B$26)^2 B5:C5)
$C$26)^2 5*
C5
Squared Deviations A Squared Deviations B Product of RA and RB
0.0000137731 0.0022310592 -0.0000117815
0.0001998587 0.0000318647 -0.0000824002
0.0006056745 0.0000003845 -0.0000072740
0.0002325261 0.0000015362 -0.0000259623
0.0003466407 0.0000015012 -0.0000331716
0.0000489674 0.0001559713 0.0000406927
0.0004487537 0.0020453696 -0.0008183473
0.0007243817 0.0003273600 -0.0004468447
0.0010338333 0.0003169133 -0.0005997692
0.0007626450 0.0005848239 0.0007816463
0.0001464176 0.0007227699 0.0004335196
0.0000074903 0.0000325633 0.0000048690
0.0006425522 0.0006987427 -0.0005995151
0.0002946233 0.0002782728 0.0003640530
0.0007277304 0.0001720851 -0.0003700080
0.0000864187 0.0008239807 -0.0003540563
0.0000751443 0.0041484683 -0.0007699217
0.0000043403 0.0000811555 0.0000137967
0.0000728018 0.0015097084 0.0001919409
0.0000619872 0.0016219018 -0.0004457599

=SUMPRODUCT(J5:J24,D5:D
Expected Portfolio Profit ($) 346.68
Variance of Port. Profit ($ squared) 3268280.11 =SUMPRODUCT(D5:D24,K5:K
24,H5:H24) St. Dev. Of Port. Profit ($) 1807.84 <= 1500
=SUM(F31:G3
1)
Invested in Stock A ($) Invested in Stock B ($) =SQRT(G27)
Total Investment
100000.00 0.00 100000.00

8*C28)

4,B5:B24)
 =SUMPRODUCT($F$31:$G$31, =(J5-
B5:C5) $G$26)^2

Portfolio Profit ($) Square Deviation of Port. Profit

-24.44 137731.06
1760.39 1998586.55
-2114.37 6056745.15
-1178.20 2325261.12
-1515.15 3466407.09
-353.09 489673.83
-1771.70 4487537.27
-2344.76 7243816.72
3562.01 10338332.98
3108.28 7626450.01
1556.71 1464175.55
72.99 74903.34
-2188.18 6425521.58
2063.14 2946233.24
3044.33 7277304.30
1276.29 864186.96
1213.54 751443.03
138.34 43402.63
-506.56 728018.04
1134.00 619871.69

=SUMPRODUCT(J5:J24,D5:D24)

=SUMPRODUCT(D5:D24,K5:K24)

Investment
= 100000.00
Maximum Allowable SD Optimal Expected Profit Investment in A ($) Investment in B (in $)
1500 346.68 100000.00 0.00

Maximum Allowable SD Optimal Expected Profit Investment in A ($) Investment in B (in $)

1310 269.344777491791 69100.0421517494 30899.9578481802
1350 285.744397036508 75652.8680334805 24347.1319665238
1400 296.674363249621 80020.1745610945 19979.825438913
1450 305.107521027475 83389.8267899785 16610.1732100275
1500 312.341751030229 86280.4212618405 13719.5787381733
1550 318.844300447375 88878.6567880891 11121.343211933
1600 324.846693433015 91277.0438971131 8722.95610288585
1650 330.482406926154 93528.9162127585 6471.08378726547
1700 335.836638849213 95668.316424265 4331.68357572321
1750 340.967333209376 97718.3973241891 2281.60267580387
1800 345.916059031974 99695.7687237918 304.231276195853
1850 346.677452293582 100000.00001265 0
1900 346.677452293582 100000.00001265 0

100000
Investments in Two Stocks, $

350
90000

Optimal Expected Profit, $

340
80000
330
70000
60000 320
50000 310
40000 300
30000 290
20000 280
10000 270
0
1300 1400 1500 1600 1700 1800 1900 260
250
Maximum Allowable SD of Profits, $ 1300 1400 1500
Maximum A
Investment in A ($) Investment in B (in $)
50
40
30
20
10
00
90
80
70
60
50
1300 1400 1500 1600 1700 1800 1900
Maximum Allowable SD of Profit, $