Corporate Finance Homework: SABIC, EXTRA Stock Analysis and Charts

This assignment solution addresses a Corporate Finance homework problem. Part I involves calculating and comparing the average return, variance, and standard deviation of SABIC and EXTRA stocks. It includes a correlation matrix and a discussion of portfolio risk reduction through stock selection. Part II requires creating and interpreting a line chart of a chosen company's stock price movement from 2010 to 2017, reporting maximum and minimum values, and assessing the overall trend. The solution also provides a brief introduction to line charts and evaluates the ease of predicting stock movement based on the chart. The assignment concludes with a list of relevant references.

Running Head: CORPORATE FINANCE 1
CORPORATE FINANCE

CORPORATE FINANCE
Contents
Part 1................................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................3
Question 3....................................................................................................................................3
Question 4....................................................................................................................................3
Part II...............................................................................................................................................3
References........................................................................................................................................6

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Part 1
Question 1
Average mean return
SABIC EXTRA
0.38% 0.35%
Question 2
Variance
0.33% 0.45%
Question 3
Standard Deviation
5.69% 6.67%
Question 4
Correlation Matrix
Column 1 Column 2
1
0.177524316 1
If the risk is to be reduced, according to standard deviation SABIC is
the right stock to choose as it’s more reliable in comparison of extra. In
terms of variance, SABIC shall be taken by those who are conservative
investors and EXTRA shall be used for investment by aggressive investors
who are risk averse. Overall SABIC is a good choice to hold on to for long
term purposes (Bhardwaj & Bangia, 2018).
Part II
Line chart is a representation of the data of the stock price of the asset that connects a
series of the data points with a continuous line. It is the basic chart which is drawn; to typically

CORPORATE FINANCE
display the adjusted close of the stock price. The stock price of Saudi Electricity company has
been recorded for the period of 7 years from 2010-2017 (Bay-Williams & Fletcher, 2017).
4/1/2010
11/1/2010
6/1/2011
1/1/2012
8/1/2012
3/1/2013
10/1/2013
5/1/2014
12/1/2014
7/1/2015
2/1/2016
9/1/2016
4/1/2017
11/1/2017
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Average returns
Average returns
0.000
5.000
10.000
15.000
20.000
25.000
Saudi Electricty
Saudi Electricty
The above chart displays the share price of Saudi Electricity; it can state that the lowest
price of the company was around $6.98 in January, 2010 whereas the maximum value is of
$22.87 in the month of January again but in the financial year 2017 (Bay-Williams & Fletcher,
2017).

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The overall trend displays the company is performing slow and the average returns of the
company was positive till 6th January 2017 and thereafter it started to fell and the returns were
negative at -11.96%. Overall the trend of average returns was immensely fluctuating and this
displays high risk associated with the stock (Christoffersen & Pan, 2018).
The line chart is easy to predict the movement of the company stock, as it clearly shows
the variables and this also helps in predicting the future results.

CORPORATE FINANCE
References
Bay-Williams, J. M., & Fletcher, G. (2017). A Bottom-Up Hundred Chart? Reflect and
Discuss. Teaching Children Mathematics, 24(3), e1-e7.
Bhardwaj, R., & Bangia, A. (2018). Stock Market trend analysis during Demonetization using
Soft-Computing techniques. In 2018 International Conference on Computing, Power and
Communication Technologies (GUCON) (pp. 696-701). IEEE.
Christoffersen, P., & Pan, X. N. (2018). Oil volatility risk and expected stock returns. Journal of
Banking & Finance, 95, 5-26.