Description
All the directions are in the attached file.
goal: Completion of this project should provide participants with an understanding of how equity investing is affected by stock selection, the relative risks of each stock choice, and how risk is defined and controlled through portfolio creations. Upon completion of the project, participants are expected to be familiar with concepts of rates of return along various temporal dimensions, stand-alone risk, portfolio risk, and where to locate stock performance information leading to a cursory ability to conduct equity research.
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Explanation & Answer
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1
STOCK DESCRIPTION
AAPL (APPLE inc)
Industry: Technology
This is a multinational company that develops designs and sells computer hardware and
software. It is based in California. The company still has a lot of growth opportunities especially
from its home pod platform that could see it generate even more revenue. The company is
mainly involved in selling Mac Os and the apple hardware while at the same time providing
customer care to the consumers of its products.
INTEL CORPORATION (INTC)
Industry: Technology
Is a technology company located in Santa Clara California. Its main source of revenue is the
design, manufacture and sale of microprocessors that it then supplies to other technological
firms. Its current growth is mainly based on competitive and effective growth strategies.
WELLS FARGO & COMPANY (WFC)
Industry: Finance
This is a financial company that is situated in San Francisco. It offers financial services in
various Parts of the world. Other than offering financial services, it also invests in companies
that have not yet been recognized but have potential.
Merck & Co (MRK)
Industry: Healthcare
This is a pharmaceutical company with its headquarters in New Jersey, US. It is one of the
largest pharmaceutical companies in the world. Its main revenue generating products are
Gardasil, Singulair and Propecia/Proscar and this in addition to the Merck manuals that it
publishes.
FedEx Corporation (FDX)
2
Industry: services
This is a multinational courier service delivery company that is situated in Memphis, Tennessee.
Their source of revenue is to collect and distribute parcels throughout the world. It has also
ventured into the logistic business and this offers it the biggest opportunity for growth.
Waste Management, Inc. (WM)
Industry: Services
This is an American waste management company that offers comprehensive waste management
and environmental services. It only operates in America and its headquarters is in Houston
Texas. It collaborates with the community and local governments to help manage waste. It also
develops and promotes the use of landfill gas.
The Goldman Sachs Group, Inc. (GS)
Industry: Finance
This is an investment banking and securities and investment management company. Its
headquarters are in New York City. It also offers investing and lending activities. The company
has many opportunities in growth due to the ever growing economy.
CVS Health Corporation (CVS)
Industry: Healthcare
This is an American company that offers retail health and pharmaceutical services. It is based in
Woonsocket. Its subsidiaries include CVS pharmacy, Aetna, Omnicare and Minute clinic. The
company is currently spearheading the career growth by assisting veterans find worthwhile
careers.
Waste Connections, Inc. (WCN)
Industry: Services
3
This is also a solid waste service that is based in North America. Its headquarters are in Ontario,
Canada. It specializes in waste disposal, transfer, collection and recycling. The company
currently generates revenue of about 3.9 billion a year.
Illinois Tool Works Inc. (ITW)
Industry: Industrial goods
A company that manufactures industrial equipment and products. It has its hands on seven major
segments with the main ones being automotive and food equipment. It also tests and measures
electronic equipment. Currently its growth is focused on specialty products such as beverage and
other consumable packaging.
INDIVIDUAL STOCK DISCUSSION
1. From the stock analysis, GS has the highest average monthly return with the value of
187.63 with INTC having the lowest average monthly returns at a value of 31.85.
2. FDX has the highest stand-alone risk and this is at a value of 42.5 while WFC has the
lowest stand-alone risk at a value of 6.44.
3. FDX has the greatest Beta measure at 1.52 while WCN has the lowest at a value of 0.52.
4. Order in terms of average returns
a) GS
b) FDX
c) AAPL
d) ITW
e) CVS
f) WM
g) MRK
h) WFC
i) WCN
j) INTC
5. Order in terms of standard deviation
4
a) FDX
b) AAPL
c) GS
d) ITW
e) WCN
f) WM
g) CVS
h) INTC
i) MRK
j) WFC
6. Highest Beta to the lowest
a) FDX
b) GS
c) WFC
d) ITW
e) AAPL
f) MRK
g) CVS
h) INTC
i) WM
j) WCN
7. The theory does not hold for my case. This is because the highly volatile stock are seen to
have a higher return and are therefore overtraded by the average traders and this usually
tends to drive down returns as opposed to the less volatile markets.
8. Yes, my greatest stand alone is the same as my greatest beta measure. This is because
both measure the volatility and therefore the risk of a stock and as such both would be
expected to be high.
9. No, they are different. The two do not have to be the same since the risk of trading a
stock is always subjective and this usually as a result of correlation between different
stocks.
5
10. I would go with the WTC stock because of its lower stand alone risk. This basically means
that I will be able to get higher returns while at the same time exposing myself too less risk.
STOCK PORTOFOLIO DISCUSSION
1. The stock should have a negative correlation this to enable the diversification of a
portfolio in such a way that if one stock is down the other stock is up and vice versa.
2. Yes, the two HI-COR were both from the financial industry. Being that they are both
from the same industry, and therefore have almost similar operation.
3. The LOW-COR had a lower stand-alone risk. This is what is expected because a lower
correlation typically portrays a more diversified and balanced out portfolio and therefore
a lower stand alone risk.
4. To diversify is to distribute risk in the stock market mainly by investing in stocks which
have a negative correlation such that a negative change in the price of one stock will be
accompanied by a positive change in the price of the other.
5. Standard deviation range is 31
6. Standard deviation of the ALL portfolio 21
7. It is closer to the highest standard deviation
8. A portfolio is usually not correlated positively and are therefore bound to be lower than
the weighted average which cannot be higher than the highest value. This weighted
average can however be lower that lowest value depending on the stand alone risk of
each stock.
9. The best that I could do is to diversify my portfolio and invest in different industries that
have negative correlations. For example from my analysis I would invest in INTC and
CVS. I would then add three more stocks, one from the financial industry, say GS and
two more from unrelated food and agricultural industries.
10. I would rather invest in a mutual fund than a single stock mainly because a mutual fund
offers more diversification and is also generally cheaper and more convenient.
6
References
Editorial, R. (2018). Markets & Finance News | Reuters.com. [online] U.S. Available at:
https://www.reuters.com/finance/markets [Accessed 29 May 2018].
Finance.yahoo.com. (2018). Yahoo is now part of Oath. [online] Available at:
https://finance.yahoo.com/ [Accessed 29 May 2018].
Date
3/1/2013
4/1/2013
5/1/2013
6/1/2013
7/1/2013
8/1/2013
9/1/2013
10/1/2013
11/1/2013
12/1/2013
1/1/2014
2/1/2014
3/1/2014
4/1/2014
5/1/2014
6/1/2014
7/1/2014
8/1/2014
9/1/2014
10/1/2014
11/1/2014
12/1/2014
1/1/2015
2/1/2015
3/1/2015
4/1/2015
5/1/2015
6/1/2015
7/1/2015
8/1/2015
9/1/2015
10/1/2015
11/1/2015
12/1/2015
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
AAPL
AAPL_D
Return
INTC
INTC_D
Return
WFC
null
null
null
47.337276
20.365269
32.725574
48.080299
3.05
2% 20.645885
0.225
1% 34.940014
44.438164
-8% 20.797457
1% 35.84042
50.713947
14% 20.033535
-4% 37.777035
54.601574
3.05
8% 18.866196
0.225
-6% 35.675411
55.999493
3% 19.865528
5% 36.130009
61.396824
10% 21.208967
7% 37.327927
65.316475
3.05
6% 20.662924
0.225
-3% 38.490883
68.688881
5% 22.711031
10% 39.978882
61.291309
-11% 21.468752
-5% 39.926052
64.43058
3.05
5% 21.661217
0.225
1% 40.877079
68.572273
6% 22.795128
5% 44.096134
75.3881
10% 23.57233
3% 44.007484
80.870155
3.29
7% 24.128744
0.225
2% 45.018127
86.469116
7% 27.525063
14% 46.930767
88.953499
3% 30.188488
10% 45.448563
95.373772
0.47
7% 31.105988
0.225
3% 45.930721
94.211754
-1% 31.223236
0% 46.638542
100.991234
7% 30.496902
-2% 47.735493
111.211929
0.47
10% 33.402225
0.225
10% 48.985302
103.664352
-7% 32.754765
-2% 49.617008
110.03186
6% 29.821362
-9% 46.992249
120.644371
0.47
10% 30.01091
0.24
1% 49.589855
117.32074
-3% 28.426231
-5% 49.561417
117.999596
1% 29.589828
4% 50.199154
122.836502
0.52
4% 31.326124
0.24
6% 50.982666
118.757591
-3% 27.853502
-11% 51.584923
114.847298
-3% 26.507521
-5% 53.080006
106.913086
0.52
-7% 26.132116
0.24
-1% 49.557854
104.905174
-2% 27.826382
6% 47.407143
113.655197
8% 31.260826
12% 49.98291
112.513885
0.52
-1% 32.100979
0.24
3% 50.869202
100.540207
-11% 32.029583
0% 50.530998
92.975334
-8% 28.840574
-10% 46.691902
92.354485
0.52
-1% 27.511044
0.26
-5% 43.615051
104.667839
13% 30.341854
10% 45.301529
90.022591
-14% 28.400352
-6% 46.819069
95.89991
0.57
7% 29.629032
0.26
4% 47.512264
92.367805
-4% 31.029655
5% 44.676208
100.686714
9% 32.978466
6% 45.280315
102.51281
0.57
2% 33.952873
0.26
3% 47.951637
109.81955
7% 35.983185
6% 42.132862
110.29554
0% 33.23798
-8% 43.77898
107.361847
0.57
-3% 33.075935
0.26
0% 50.353912
113.088043
5% 34.834225
5% 52.874607
1/1/2017 118.487602
2/1/2017 133.758713
3/1/2017 140.879517
4/1/2017 140.869705
5/1/2017 149.803391
6/1/2017 141.815506
7/1/2017
146.4534
8/1/2017 161.48967
9/1/2017 152.356857
10/1/2017 167.106186
11/1/2017 169.884033
12/1/2017 167.895416
1/1/2018 166.109604
2/1/2018 176.715302
3/1/2018 167.135513
4/1/2018 164.625183
5/1/2018 187.855606
5/25/2018 188.580002
Mean return
110.20
Std Deviation37.4491765
Coefficient of0.33981743
Variation
0.57
0.63
0.63
0.63
0.63
0.73
1.2
5%
13%
5%
0%
6%
-5%
3%
10%
-6%
10%
2%
-1%
-1%
6%
-5%
-2%
14%
0%
0.025
35.36245
34.766991
34.889442
34.966831
34.928135
32.878044
34.563847
34.174065
37.385208
44.660011
44.02187
45.585854
47.541225
48.676922
51.781151
51.323788
55.121868
55.439999
31.85
8.80093
0.2763659
0.26
0.273
0.273
0.273
0.3
0.3
0.3
2%
-2%
0%
0%
0%
-6%
5%
-1%
9%
19%
-1%
4%
4%
2%
6%
-1%
7%
1%
0.018
54.04512
55.532249
53.764992
52.006954
49.398884
53.899036
52.469124
49.677387
54.035812
55.00581
55.329147
59.859612
64.90136
57.629799
52.018356
51.571716
54.48975
54.900002
47.81
6.4475502
0.1348609
WFC_D
Return
0.3
0.3
0.3
0.3
0.35
0.35
0.35
0.35
0.375
0.375
0.375
0.375
0.38
0.38
0.38
7%
3%
5%
-6%
1%
3%
3%
4%
0%
2%
8%
0%
2%
4%
-3%
1%
2%
2%
3%
1%
-5%
6%
0%
1%
2%
1%
3%
-7%
-4%
5%
2%
-1%
-8%
-7%
4%
3%
1%
-6%
1%
6%
-12%
4%
15%
5%
MRK
MRK_D
Return
FDX
FDX_D
Return
null
null
40.021393
90.818474
39.765949
-1% 93.069366
2%
39.553059
0.43
-1%
95.23333
0.15
2%
41.394375
5% 102.559212
8%
40.638165
-2% 103.875076
1%
40.913158
0.43
1% 110.405983
0.15
6%
39.096844
-4% 126.92231
15%
43.206829
11% 134.382645
6%
43.397591
0.44
0% 139.29483
0.15
4%
46.346069
7% 129.308853
-7%
49.863365
8% 129.318527
0%
49.670876
0.44
0% 128.571686
0.15
-1%
51.636967
4% 132.295197
3%
51.019722
-1% 139.975601
6%
51.010899
0.44
0% 146.986053
0.2
5%
50.409279
-1% 142.821518
-3%
53.403263
6% 143.793869
1%
52.665874
0.44
-1% 156.988953
0.2
9%
51.850864
-2% 162.987137
4%
54.052338
4% 173.482971
6%
50.821728
0.45
-6% 169.082153
0.2
-3%
54.35273
7% 164.836502
-3%
52.783825
-3% 172.507584
5%
51.828053
0.45
-2% 161.268936
0.2
-7%
54.1381
4% 165.475952
3%
55.347027
2% 169.037827
2%
51.74752
0.45
-7% 166.285889
0.25
-2%
54.000366
4% 167.510544
1%
49.320213
-9% 147.17514
-12%
45.235382
0.45
-8% 140.69635
0.25
-4%
50.493073
12% 152.748047
9%
48.968861
-3% 155.185333
2%
48.793346
0.46
0% 145.837418
0.25
-6%
47.211742
-3% 130.28981
-11%
46.783134
-1% 134.211868
3%
49.298866
0.46
5% 159.548172
0.25
19%
51.544163
5% 162.177139
2%
52.878822
3% 162.039642
0%
54.147697
0.46
2% 149.083923
0.4
-8%
55.58466
3% 159.421631
7%
59.498146
7% 162.405258
2%
59.138065
0.46
-1% 172.006027
0.4
6%
56.049538
-5% 172.068161
0%
58.407207
4% 189.194046
10%
56.192719
0.47
-4% 183.794693
0.4
-3%
0.38
0.38
0.39
0.39
0.39
0.39
0.4
2%
3%
-3%
-3%
-5%
9%
-3%
-5%
9%
2%
1%
8%
8%
-11%
-10%
-1%
6%
1%
0.010
59.624874
63.356831
61.115738
60.384533
63.077766
62.089592
62.341198
62.321682
62.487583
54.151806
54.328743
55.311714
58.736362
53.749969
53.997803
58.869999
59.09
59.09
52.52
6.5211478
0.1241707
0.47
0.47
0.47
0.48
0.48
0.5
6%
6%
-4%
-1%
4%
-2%
0%
0%
0%
-13%
0%
2%
6%
-8%
0%
9%
0%
0%
0.007
187.047806
190.87561
193.021942
188.02124
192.124603
215.406723
206.678909
212.987656
224.114914
224.869644
230.496124
248.500824
261.934235
245.897659
239.610748
247.199997
251.5
251.5
168.39
42.4981064
0.25237432
0.4
0.5
0.5
0.5
0.5
0.3
2%
2%
1%
-3%
2%
12%
-4%
3%
5%
0%
3%
8%
5%
-6%
-3%
3%
2%
0%
0.018
WM
null
WM_D
35.52
36.35
34.96
36.75
35.36
36.06
38.42
40.31
39.60
37.17
36.92
37.4...