Deakin University MAF203 Business Finance: Risk and Return Analysis

This business finance assignment analyzes risk and return using real-world data. It starts by computing continuously compounded returns and expected returns for market and a specific stock (JBHIFI). The assignment proceeds to calculate standard deviation, correlation coefficients, and beta, comparing these results to website data. It then applies the Capital Asset Pricing Model (CAPM) to determine the required rate of return and assesses portfolio risk and return, considering diversification benefits. The document also explains spurious correlation with an example. The analysis includes detailed calculations and interpretations of financial metrics, offering a comprehensive understanding of risk and return concepts in finance.

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
Name of the University:
Authors Note:

BUSINESS FINANCE
1
Table of Contents
Part II: Risk and Return..............................................................................................................2
1. Computing continuously compounded return using daily data:............................................2
2. Computing Expected return:..................................................................................................8
3. Computing the standard deviation:........................................................................................8
4. Computing the (daily) return correlation coefficient:............................................................8
5. Commenting on the correlation coefficient between JBHIFI and Market:............................8
6. Calculating beta and detecting the difference between different results:..............................8
7. Computing the required rate of return using CAPM:.............................................................9
8. Computing the expected return and standard deviation of your portfolio:..........................10
9. Comparing and explaining the differences between the portfolio risk and return versus the
individual securities risk and return:........................................................................................10
10. Giving an example of spurious correlation and explain why it is called spurious
correlation:...............................................................................................................................11
Reference and Bibliography:....................................................................................................13

BUSINESS FINANCE
2
Part II: Risk and Return
1. Computing continuously compounded return using daily data:
Date Market return jbhifi return
2018-01-
02 0.15% 2.27%
2018-01-
03 0.16% 0.67%
2018-01-
04 0.71% 1.98%
2018-01-
07 0.11% 2.09%
2018-01-
08 0.08% 2.74%
2018-01-
09 -0.57% -2.03%
2018-01-
10 -0.48% 4.34%
2018-01-
11 0.01% 1.31%
2018-01-
14 0.18% -0.64%
2018-01-
15 -0.35% 1.16%
2018-01-
16 -0.51% -1.81%
2018-01-
17 -0.06% -1.58%
2018-01-
18 -0.18% 1.19%
2018-01-
21 -0.21% -0.22%
2018-01-
22 0.73% 2.41%
2018-01-
23 0.29% -1.70%
2018-01-
24 -0.07% 1.31%
2018-01-
28 0.37% 1.47%
2018-01-
29 -0.85% -0.10%
2018-01-
30 0.18% 1.52%
2018-01- 0.85% -0.69%

BUSINESS FINANCE
3
31
2018-02-
01 0.50% -2.23%
2018-02-
04 -1.64% -1.85%
2018-02-
05 -3.29% -2.43%
2018-02-
06 0.86% 0.55%
2018-02-
07 0.23% 2.28%
2018-02-
08 -0.97% 0.46%
2018-02-
11 -0.30% -8.34%
2018-02-
12 0.63% 2.14%
2018-02-
13 -0.29% 1.32%
2018-02-
14 1.15% 0.56%
2018-02-
15 -0.06% -0.52%
2018-02-
18 0.65% 3.38%
2018-02-
19 0.03% -0.47%
2018-02-
20 0.03% 0.33%
2018-02-
21 0.17% -3.46%
2018-02-
22 0.78% 0.75%
2018-02-
25 0.67% 1.11%
2018-02-
26 0.21% -1.93%
2018-02-
27 -0.68% -2.85%
2018-02-
28 -0.68% 0.61%
2018-03-
01 -0.78% -0.50%
2018-03-
04 -0.53% -0.31%
2018-03-
05 1.08% 1.84%
2018-03-
06 -0.93% -1.18%

BUSINESS FINANCE
4
2018-03-
07 0.68% 1.37%
2018-03-
08 0.37% -0.57%
2018-03-
11 0.53% -1.11%
2018-03-
12 -0.40% -0.85%
2018-03-
13 -0.57% 0.31%
2018-03-
14 -0.25% 0.00%
2018-03-
15 0.45% 1.34%
2018-03-
18 0.16% 0.04%
2018-03-
19 -0.39% -0.57%
2018-03-
20 0.20% 1.30%
2018-03-
21 -0.16% -0.68%
2018-03-
22 -1.91% -2.43%
2018-03-
25 -0.47% 0.66%
2018-03-
26 0.71% 0.58%
2018-03-
27 -0.75% -0.43%
2018-03-
28 -0.51% 0.04%
2018-04-
03 -0.17% -2.00%
2018-04-
04 0.08% 1.96%
2018-04-
05 0.41% 0.73%
2018-04-
06 -0.02% 0.31%
2018-04-
09 0.30% 0.50%
2018-04-
10 0.79% -0.19%
2018-04-
11 -0.44% -0.58%
2018-04-
12 -0.24% -0.77%
2018-04- 0.22% -0.12%

BUSINESS FINANCE
5
13
2018-04-
16 0.14% 0.00%
2018-04-
17 0.02% -1.56%
2018-04-
18 0.37% 2.22%
2018-04-
19 0.34% -0.15%
2018-04-
20 -0.20% -2.23%
2018-04-
23 0.19% -0.32%
2018-04-
24 0.56% 0.75%
2018-04-
26 -0.11% 0.74%
2018-04-
27 0.66% -0.39%
2018-04-
30 0.47% 0.66%
2018-05-
01 0.47% -0.51%
2018-05-
02 0.60% -9.38%
2018-05-
03 0.82% 1.58%
2018-05-
04 -0.51% -0.55%
2018-05-
07 0.33% -0.98%
2018-05-
08 0.12% -1.30%
2018-05-
09 0.34% -1.23%
2018-05-
10 0.19% -1.87%
2018-05-
11 0.01% -1.08%
2018-05-
14 0.30% 0.81%
2018-05-
15 -0.58% 0.58%
2018-05-
16 0.15% 4.12%
2018-05-
17 -0.18% 0.43%
2018-05-
18 -0.10% 0.47%

BUSINESS FINANCE
6
2018-05-
21 -0.01% -1.03%
2018-05-
22 -0.65% 1.24%
2018-05-
23 -0.16% 1.27%
2018-05-
24 0.06% -1.61%
2018-05-
25 -0.05% 0.89%
2018-05-
28 -0.45% 0.30%
2018-05-
29 0.13% -1.57%
2018-05-
30 -0.46% 0.21%
2018-05-
31 0.49% 2.32%
2018-06-
01 -0.32% 0.79%
2018-06-
04 0.57% -3.32%
2018-06-
05 -0.49% 0.26%
2018-06-
06 0.47% 0.64%
2018-06-
07 0.52% -0.81%
2018-06-
08 -0.20% 0.09%
2018-06-
12 0.13% -0.04%
2018-06-
13 -0.52% -1.90%
2018-06-
14 -0.06% -0.70%
2018-06-
15 1.23% -0.48%
2018-06-
18 0.12% 0.79%
2018-06-
19 -0.06% -0.39%
2018-06-
20 1.05% -0.44%
2018-06-
21 0.92% 0.88%
2018-06-
22 -0.17% 1.86%
2018-06- -0.21% -1.08%

BUSINESS FINANCE
7
25
2018-06-
26 -0.26% -0.78%
2018-06-
27 -0.03% -0.79%
2018-06-
28 0.24% -0.31%
2018-06-
29 -0.26% -0.58%
2018-07-
02 -0.26% -0.45%
2018-07-
03 0.47% 1.42%
2018-07-
04 -0.46% -1.46%
2018-07-
05 0.46% 0.84%
2018-07-
06 0.83% 0.00%
2018-07-
09 0.17% -0.31%
2018-07-
10 -0.37% 1.10%
2018-07-
11 -0.67% -0.70%
2018-07-
12 0.78% 3.43%
2018-07-
13 0.03% -0.51%
2018-07-
16 -0.40% 1.03%
2018-07-
17 -0.61% -0.47%
2018-07-
18 0.65% 0.98%
2018-07-
19 0.41% 0.59%
2018-07-
20 0.35% -0.38%
2018-07-
23 -0.90% -1.40%
2018-07-
24 0.55% 1.15%
2018-07-
25 -0.21% -0.25%
2018-07-
26 -0.06% 0.93%
2018-07-
27 0.85% 0.75%

BUSINESS FINANCE
8
2018-07-
30 -0.36% -0.59%
2018-07-
31 -0.04% 0.04%
2018-08-
01 -0.06% -0.38%
2018-08-
02 -0.54% -4.74%
2018-08-
03 -0.02% 0.35%
2018-08-
06 0.51% -0.13%
2018-08-
07 -0.29% -2.27%
2018-08-
08 0.22% 0.76%
2018-08-
09 0.45% 1.82%
2018-08-
10 -0.26% 2.98%
2018-08-
13 -0.40% -0.38%
2018-08-
14 0.71% 5.61%
2018-08-
15 0.46% 5.66%
2018-08-
16 -0.05% 0.08%
2018-08-
17 0.21% -0.57%
2018-08-
20 0.14% 0.65%
2018-08-
21 -0.81% -0.80%
2018-08-
22 -0.14% 0.00%
2018-08-
23 -0.21% -1.59%
2018-08-
24 -0.04% 0.04%
2018-08-
27 0.36% -0.51%
2018-08-
28 0.51% -0.71%
2018-08-
29 0.67% 1.14%
2018-08-
30 0.05% 1.86%
2018-08- -0.51% 1.30%

BUSINESS FINANCE
9
31
2018-09-
03 -0.18% -2.07%
2018-09-
04 -0.27% 0.04%
2018-09-
05 -0.94% 0.00%
2018-09-
06 -1.13% -2.31%
2018-09-
07 -0.25% -1.11%
2018-09-
10 -0.04% -0.32%
2018-09-
11 0.60% -0.52%
2018-09-
12 -0.06% 0.08%
2018-09-
13 -0.70% -0.44%
2018-09-
14 0.58% 0.61%
2018-09-
17 0.28% 1.32%
2018-09-
18 -0.39% -1.92%
2018-09-
19 0.44% 1.01%
2018-09-
20 -0.32% -0.20%
2018-09-
21 0.45% 0.48%
2018-09-
24 -0.09% -0.28%
2018-09-
25 -0.01% 0.68%
2018-09-
26 0.14% 0.52%
2018-09-
27 -0.13% 0.36%
2018-09-
28 0.42% -0.59%
2018-10-
01 -0.52% -0.76%
2018-10-
02 -0.75% -2.72%
2018-10-
03 0.31% 1.02%
2018-10-
04 0.46% -0.69%

BUSINESS FINANCE
10
2018-10-
05 0.11% 0.29%
2018-10-
07 -1.32% -1.32%
2018-10-
08 -1.02% 1.19%
2018-10-
09 0.13% 2.42%
2018-10-
10 -2.80% -1.98%
2018-10-
11 0.22% 0.37%
2018-10-
14 -0.98% -0.53%
2018-10-
15 0.50% 1.94%
2018-10-
16 1.15% 0.44%
2018-10-
17 0.05% -0.60%
2018-10-
18 -0.12% -1.41%
2018-10-
21 -0.61% 0.00%
2018-10-
22 -1.03% -0.08%
2018-10-
23 -0.31% -4.24%
2018-10-
24 -2.86% -2.97%
2018-10-
25 0.00% -1.50%
2018-10-
28 0.94% 0.31%
2018-10-
29 1.27% 2.88%
2018-10-
30 0.43% -1.17%
2018-10-
31 0.21% 0.30%
2018-11-
01 0.17% 0.78%
2018-11-
04 -0.52% 0.21%
2018-11-
05 0.91% 0.34%
2018-11-
06 0.39% 0.85%
2018-11- 0.57% -0.34%

BUSINESS FINANCE
11
07
2018-11-
08 -0.08% 1.10%
2018-11-
11 0.27% 1.21%
2018-11-
12 -1.75% -0.75%
2018-11-
13 -1.71% -0.76%
2018-11-
14 0.05% 1.05%
2018-11-
15 -0.04% -1.35%
2018-11-
18 -0.63% -1.62%
2018-11-
19 -0.47% -2.97%
2018-11-
20 -0.65% -0.36%
2018-11-
21 0.84% 3.28%
2018-11-
22 0.40% 0.64%
2018-11-
25 -0.76% 0.89%
2018-11-
26 0.92% -0.21%
2018-11-
27 -0.05% -1.67%
2018-11-
28 0.61% 0.99%
2018-11-
29 -1.49% -0.90%
2018-12-
02 1.84% 0.99%
2018-12-
03 -1.01% -2.33%
2018-12-
04 -0.84% -1.06%
2018-12-
05 -0.22% -0.13%
2018-12-
06 0.37% 1.45%
2018-12-
09 -2.29% -3.33%
2018-12-
10 0.42% -1.68%
2018-12-
11 1.34% 3.56%