University Finance Project: Stock Analysis and Portfolio Strategy

This finance project meticulously analyzes the performance of three stocks: CBA.AX, WBC.AX, and AORD, utilizing holding period return calculations to evaluate their historical performance. The project delves into average and annual holding period returns, standard deviations, and presents a scatter plot visualizing risk and return. Furthermore, the Capital Asset Pricing Model (CAPM) is applied to determine expected returns, and a security market line (SML) is constructed. The project then constructs a portfolio combining CBA and WBC, calculating its beta and expected return. The analysis concludes with a recommendation that either individual stock investments or the portfolio strategy are viable options, as they yield similar risk-adjusted returns. References include Yahoo Finance for historical data and a relevant academic text on portfolio management.

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

FINANCE 2
Table of Contents
Holding period return of the three stocks:..................................................................................3
Average Holding period return..................................................................................................4
Annual Holding period return....................................................................................................5
Standard deviation......................................................................................................................5
Scatter Plot.................................................................................................................................5
CAPM Return.............................................................................................................................5
Security Market Line..................................................................................................................6
Portfolio of CBA and WBC.......................................................................................................6
Recommendation........................................................................................................................6
Reference and Bibliography:......................................................................................................8

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Holding period return of the three stocks:

FINANCE 4
6/1/2017
7/1/2017
8/1/2017
9/1/2017
10/1/2017
11/1/2017
12/1/2017
1/1/2018
2/1/2018
3/1/2018
4/1/2018
5/1/2018
-12.00%
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
Holding Period Return
WBC.AX
CBA.AX
AORD
Average Holding period return

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Annual Holding period return
Standard deviation
Scatter Plot
1.500% 2.000% 2.500% 3.000% 3.500% 4.000% 4.500%
-10.000%
-8.000%
-6.000%
-4.000%
-2.000%
0.000%
2.000%
4.000%
6.000%
8.000%
10.000%
8.368%
-8.377%
-5.746%
Return and Risk (Scatter Plot)
WBC.AX
CBA.AX
AORD
CAPM Return
Particulars CBA.AX WBC.AX
10-year government
bond) 2.780% 2.780%
β 1.230 1.260
Rm 5.850% 5.850%
CAPM 2.780 %± 1.230 ×(5.850%−2.780 %)2.780 %± 1.260 ×(5.850%−2.780 %)
CAPM 6.556% 6.648%

FINANCE 6
Security Market Line
0.0000 0.5000 1.0000 1.5000
0.0000%
1.0000%
2.0000%
3.0000%
4.0000%
5.0000%
6.0000%
7.0000%
SML Line
WBC.AX
CBA.AX
Portfolio of CBA and WBC
Particulars CBA.AX WBC.AX
Investment weight 60.000% 40.000%
β 1.230 1.260
CAPM(Return) 6.556% 6.648%
βP ( 60 %× 1.230 ) +(40 % ×1.260)
βP 1.2420
RP ( 60 % × 6.556 % )+(40 % ×6.648 %)
RP 6.593%
Recommendation
The calculations indicate that investment in either stocks or portfolio will yield the
same results, as risk and return attributes of the investment is same. Investment in stock and
portfolio is conducted with the help of risk and return analysis, which allows the investors to
determine the investment opportunities and detect how many returns, will be provided from
an investment. The calculations indicate that the portfolio will generate a return of 6.593%
with the beta of 1.2420, whereas individual investments in CBA will yield 6.556% return
with beta of 1.230, while WBC will yield 6.648 returns with beta of 1.260. The analysis

FINANCE 7
indicates that investment in ethical of the stocks or portfolio will yield the same results, as the
risk and return attributes of the operations are similar. Hence, the investors can utilize the
portfolio for investment, as it combines both CBA and WBC returns and risk attributes. This
will allow the investors to segregate some of the risk from investment and generate high
income from the invested capital. Hoesli & MacGregor (2014) mentioned that portfolio
allows the investors to combine risky investment with low risk securities for reducing the risk
and increasing the returns from investment.

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Reference and Bibliography:
Au.finance.yahoo.com. (2018). Au.finance.yahoo.com. Retrieved 20 December 2018, from
https://au.finance.yahoo.com/quote/CBA.AX/history?
period1=1464719400&period2=1498761000&interval=1mo&filter=history&frequenc
y=1mo
Au.finance.yahoo.com. (2018). Au.finance.yahoo.com. Retrieved 20 December 2018, from
https://au.finance.yahoo.com/quote/WBC.AX/history?
period1=1464719400&period2=1498761000&interval=1mo&filter=history&frequenc
y=1mo
Hoesli, M., & MacGregor, B. D. (2014). Property investment: principles and practice of
portfolio management. Routledge.