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Portfolio Analysis Assignment

   

Added on  2020-03-16

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Running Header: PORTFOLIO ANALYSIS1Portfolio analysisStudent's name:Institution:Professor's name:Course:
Portfolio Analysis Assignment_1

Portfolio analysis21.a)Continuously compounding of returnsb)Vector of expected returnsFrom the derived annualized returns, it can be seen that the stocks have a positive return with all the ten stocks and the market index having an annualized expected return that ranges from 0.7 to 1.3. From the variance-covariance matrix, it can be seen that the covariance between the stocks and the index is positive indicating a positive relationship. On the other hand, the variances of the stocks are also high. Thus, it can be seen that the stocks are highly volatile since the variance range from 0.5 to 1.1.c)Table 1: Stock betasStock betasCBAWBCANZBHPNABCSLTLSWESWOWMQGBeta1.0120.9900.9190.7590.9091.3131.0540.9430.8551.251The table above shows that the 10 stocks have a high volatility. Moreover, CBA, CSL, TLS, and MQG have a volatility that is more than the market as they are more than 1. d)Table 2: Total risk decompositionCBAWBCANZBHPNABCSLTLSWESWOWMQGVariance1.0110.9680.8270.5370.8131.6581.0950.8800.6981.520Systematic risk1.0140.9710.8370.5710.8191.7091.1000.8810.7241.550Unsystematic risk-0.002-0.003-0.010-0.035-0.006-0.050-0.005-0.001-0.027-0.029R^20.4130.8280.7940.2470.1520.0140.1340.0550.7340.456
Portfolio Analysis Assignment_2

Portfolio analysis3The systematic risk and the variance of the stocks are almost similar. It, therefore, suggests that the risks of the assets are attributed to macroeconomic factors which affect all assets (Gencay, 2005). On the other hand, the unsystematic risks are very low suggesting that there is no risk of anything going wrong with the company of the industry (Estrada, 2002).The R square of the stocks varies across the stocks. Stocks with an R squared that is between 0.85and 1, have a performance which is in line with the market. Stocks with R squared less than 0.7 do not perform in line with the index. They include CBA, BHP, NAB, CSL, TLS, WES, and MQG.e)Figure 1: Capital Market Line0.730.830.931.031.131.231.3300.20.40.60.811.21.41.28Capital Market LineStandard deviationReturnsf)Figure 2: Security Market Line
Portfolio Analysis Assignment_3

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