Question

Suppose that you are considering various portfolios that mix Exxon Mobil stock with American Airlines stock. These are the only two risky assets in the portfolios. Suppose that the expected returns on Exxon Mobil stock are 10% and the standard deviation of returns is 20%. For American Airlines, the expected returns and standard deviation are 6% and 15%, respectively. Returns on the two stocks are perfectly negatively correlated. What is the risk (or, standard deviation of returns) of the least risky portfolio that you can form from the two stocks?

Group of answer choices

10%

6%

8.5%

0

15%

Answer 1

Summary

• If you regretted not investing more in 2008, there are quality oil companies trading for a lower P/E ratio today that you can invest in.
• Covid-19 fears have become overblown, especially in terms of market punishments. Even in a worst case scenario markets are undervalued.
• I recommend investing in the three companies discussed below. Let me know what you think in the comments!

Stock prices fluctuate on a day-to-day basis. Throughout all of this fluctuation, it's important to remember that what you're buying isn't a piece of paper, it's a share of a company. As a shareholder in a company, you're entitled to an equivalent percentage of its profits, expenses, and more. 2008 was a prime example of how investors can overreact, if you invested in 2008 you'd be sitting on >350% gains.

No industry has been punished more recently than oil companies. These undervalued companies have significant potential to reward shareholders. As we'll see throughout this article, ExxonMobil (NYSE: XOM), Gran Tierra Energy (NYSEARCA: GTE), and Occidental Petroleum (NYSE: OXY) are three companies with the ability to generate significant shareholder rewards if you invest today.