South Carolina

2. We analyzed the monthly stock return data for the DOW 30 from January 1990 to June 1998. When viewed individually, higher performing stocks are not always the riskiest (as measured by standard deviation).

3. We then formed a portfolio of a combination of high performing stocks and compared its performance. For e.g. we formed a portfolio consisting of Exxon and GE and compared its returns and risk to a portfolio consisting of GE and GM. From the table below, we can see that a portfolio consisting of Exxon and GE has higher returns and lesser risk compared risk to a portfolio consisting of GE and GM.

Exxon & GE GE & GM

Avg. Annual Return (%) 1.76 (23.3 annual) 1.57 (20.5 annual)

Risk (st. dev.) 3.95 5.46

4. We arbitrarily assigned DOW 30 stocks into portfolio's of 1, 5, 10 and 30, and analyzed

each portfolio's performance over the same period (January 1990 to June 1998).

1 5 10 30

Avg. Monthly Return (%) 0.97 1.22 1.40 (18.2% annual) 1.43 (18.6% annual)

Risk (st. dev.) 6.72 4.85 3.70 3.84

It can be seen that the group of 10 stocks had nearly as high a return as the group of 30.

Furthermore, the group of 10 was slightly less volatile as well. Both groups had higher

returns and lower volatility than the portfolio's of 1 and 5 stocks.

In addition, the risk of these two portfolio's is substantially lower than the risk associated