Financial Analysis: Portfolio Risk, Return, and Beta Calculation

This business finance assignment analyzes the performance of various stocks and an index (ASX200) over three years, evaluating returns, volatility, and risk. The assignment includes calculations of average returns, standard deviations, and beta values for individual stocks and an equally weighted portfolio. The analysis compares the risk and return profiles of different investments, identifying potential overvalued and undervalued stocks. Key findings include the lower volatility of the ASX index compared to individual stocks and the benefits of portfolio diversification in reducing risk. The student concludes with investment recommendations based on risk tolerance, suggesting investments in AGL and WBC for conservative investors and highlighting the potential for growth in ANZ, NAB, and WBC for those seeking higher returns, while also advising on the use of a combined portfolio to mitigate risk. The assignment utilizes financial metrics to assess investment viability and provide strategic insights.

Running head: BUSINESS FINANCE
Business Finance
Student Name:
Student Number:
Authors Note:

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Table of Contents
Part 1:.........................................................................................................................................2
Answer to a):..............................................................................................................................2
Answer to b):..............................................................................................................................2
Part 2:.........................................................................................................................................3
Answer to a):..............................................................................................................................3
Answer to b):..............................................................................................................................3
Answer to c):..............................................................................................................................4
Part 3:.........................................................................................................................................4
Answer to a):..............................................................................................................................4
Answer to b):..............................................................................................................................4
Part 4:.........................................................................................................................................5
Answer to a):..............................................................................................................................5
Answer to b):..............................................................................................................................7
References and Bibliography:....................................................................................................8
Appendices:..............................................................................................................................10

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Part 1:
Answer to a):
The above calculation mainly helps in detecting the overall average return of five
stocks and one index over the period of three years. From the relevant calculation, it has been
detected that the returns of the ASX200 was mainly higher than NAB, WBC and ANZ
stocks, whereas the performance of AGL and QAN exceeded immensely in comparison to the
index. The return of ASX 200 was at the levels of 0.10, while the financial sector stock
accumulated lower returns, where NAB achieved only 0.09, WBC obtained 0.09 and ANZ
got .0.07 returns for the period of three years (Chandra 2017).
Answer to b):
The calculation in the above figure indicated about the portfolio return with equal
weights which has been derived after making relevant calculations. The equally weighted
portfolio return is mainly calculated by multiplying the portion of the stock weights with the
returns of the stock and then adding all the stock listed in the portfolio to derive the actual
return over the period of three years. The calculations have stated that overall average return
of the equally weighted portfolio is at the level of 0.81, which is higher than the ASX 200
return (Williams and Dobelman 2017).

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Part 2:
Answer to a):
The information depicted in the above table stated about the variance and standard
deviations of each stock and index for the duration of three years. The standard deviation of
the stocks and index is mainly calculated by square rooting the values of the variance
obtained from the calculations (DeFusco et al. 2015). Therefore, the calculation of the
standard deviation has indicted that the volatility conditions of the stock is relatively higher in
comparison to the index, where the index value is at the 3.25, while the values of the stock
ranges from 4.74 to 9.13. The derivation of the standard deviation mainly helps in detecting
the volatility or risk associated with the price movement of a particular stock.
Answer to b):
The calculation has mainly stated that the standard deviation of the equally weighted
portfolio is at the levels of 4.29, which is lower than the values of individual stock. This
mainly states that the portfolio risk is mainly lower than individual stock, as it reduces the
risk components of the investment.

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Answer to c):
The calculation of the standard deviation has mainly stated the volatility conditions
that is associated with the price movement of the stocks and the index. The calculations of the
standard deviation for the ASX index has indicated a value of 3.25, which is lower than the
individual stocks and the equally weighted portfolio. Therefore, it could be detected that the
ASX Index has the lowest volatility in comparison to stock and index (Hoesli and MacGregor
2014).
Part 3:
Answer to a):
Answer to b):
The overall calculation of beta is based on the covariance of the stock and variance of
the market. The calculation mainly helps in detecting the overall risk that is associated with
the investment in each stock (Garg and Dua 2014). From the valuation, it has been detected
that investments in AGL and QAN is mainly viable, as it has the lowest level of risk in

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comparison to the banking stocks. The volatility conditions of the company directly help in
detecting the risk that is associated with the investment in the organization.
Part 4:
Answer to a):
The calculation in the above table provides relevant information regarding the risk,
required return and expected return of the ASX index, AGL, ANZ, NAB, QAN, WBC and
equally weighed portfolio. The calculation mainly helps in detecting viable investment
options, which could be used by the investor to secure their investment in the organization.
The analysis of the risk components is mainly conducted by detecting the beta levels of each
company, which has been achieved after analyzing each stock returns over the period of time
(Altuntas and Dereli 2015). The beta levels of the stock have mainly ranged from the level of
0.72 to 1.31, which falls under the beta levels of the ASX 200 Index. The equally portfolio
weighted beta is at the level of 1.02, which is higher than the market index that the level of
risk involved in portfolio investment is relevantly low.
The risk levels of ANZ is at 1.31, NAB is at 1.11 and WBC is at 1.22, which is
relatively higher than the market beta level of 1. This mainly states that the investment in
stock with a higher beta than the market would be considered as a risky investment, which
could lead to loss than the investors (Najeeb, Bacha and Masih 2015). The analysis has been
conducted for detecting that investments in such companies would mainly result in higher

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risk exposure. Moreover, the risk conditions of AGL is at 0.73 and QAN is at 0.72, which is
lower than the market index. This low level of risk involved in the investment of both the
stocks directly states about the low level of risk exposure that would associate with the
investment in such companies.
Further analysis of each stock has mainly indicated that the valuation of the
companies in the capital market is over and underpriced. The companies such as AGL and
WBC is considered to be overpriced and is estimated to decline over the period of next six
months (Briston 2017). The derivation is detected by analyzing the required return and
expected to return for each stock. In addition, the calculation further states that the stock price
of ANZ, NAB and WBC is relevantly low, which will eventually increase over the period of
six months.
Therefore, the investment in the selected companies can be conducted on the basis of
risk and return attributes. From the relevant analysis it has been detected that investment in
AGL and WBC could be conducted, as their risk attributes are relevantly low in comparison
to the market. Therefore, investment in AGL and WBC can be conducted by conservative
investors who are not willing to increase their risk exposure from investment. The
calculations have mainly stated that the risk level of ANZ, NAB and WBC is relatively high,
where the risk involved in the investment is high (Guidi and Ugur 2014). This form of
investment is mainly conducted by investors who are looking for growth prospects. Thus, a
combination of the stocks could also be used for mitigating risk and generating high level of
returns from investment.

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Answer to b):
The investment in the equally weighed portfolio is advisable, as the returns of the
investment is appropriate, as it is able to reduce the level of risk components from the
investment.

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References and Bibliography:
Altuntas, S. and Dereli, T., 2015. A novel approach based on DEMATEL method and patent
citation analysis for prioritizing a portfolio of investment projects. Expert systems with
Applications, 42(3), pp.1003-1012.
Briston, R.J., 2017. The Stock Exchange and Investment Analysis. Routledge.
Chandra, P., 2017. Investment analysis and portfolio management. McGraw-Hill Education.
DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Runkle, D.E. and Anson, M.J.,
2015. Quantitative investment analysis. John Wiley & Sons.
Garg, R. and Dua, P., 2014. Foreign portfolio investment flows to India: determinants and
analysis. World Development, 59, pp.16-28.
Guidi, F. and Ugur, M., 2014. An analysis of South-Eastern European stock markets:
Evidence on cointegration and portfolio diversification benefits. Journal of International
Financial Markets, Institutions and Money, 30, pp.119-136.
Hoesli, M. and MacGregor, B.D., 2014. Property investment: principles and practice of
portfolio management. Routledge.
Hua, S., Liang, J., Zeng, G., Xu, M., Zhang, C., Yuan, Y., Li, X., Li, P., Liu, J. and Huang,
L., 2015. How to manage future groundwater resource of China under climate change and
urbanization: An optimal stage investment design from modern portfolio theory. Water
research, 85, pp.31-37.
Kevin, S., 2015. Security analysis and portfolio management. PHI Learning Pvt. Ltd.

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Najeeb, S.F., Bacha, O. and Masih, M., 2015. Does heterogeneity in investment horizons
affect portfolio diversification? Some insights using M-GARCH-DCC and wavelet
correlation analysis. Emerging Markets Finance and Trade, 51(1), pp.188-208.
Shakouri, M., Lee, H.W. and Choi, K., 2015. PACPIM: new decision-support model of
optimized portfolio analysis for community-based photovoltaic investment. Applied
energy, 156, pp.607-617.
Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific
Book Chapters, pp.109-169.

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Appendices:
WBC.AX ($A) Portfolio (equal weight) ASX200 AGL.AX ($A) ANZ.AX ($A) NAB.AX($A) QAN.AX ($A) WBC.AX ($A) Portfolio (equal weight)
Mean 0.10 1.72 0.07 0.09 2.11 0.09 0.81
3.63 4.00 Variance 10.58 22.48 34.44 26.52 83.29 29.14 18.39
-7.41 -2.14 Standard Deviation 3.25 4.74 5.87 5.15 9.13 5.40 4.29
-7.95 -0.99 Covariance 10.58 7.71 13.90 11.70 7.63 12.88 10.76
-0.82 -3.14 Beta 1.00 0.73 1.31 1.11 0.72 1.22 1.02
7.70 7.90
-8.79 -8.56 Expected return (monthly) 0.52 -0.65 0.87 0.05 4.84 -0.30 0.96
-6.59 -1.24 Required return 0.52 0.42 0.65 0.57 0.41 0.61 0.53
6.38 2.38
2.45 -1.84 Excel formulas
7.66 8.47 Mean =AVERAGE(K3:K37)
-8.08 -6.43 Variance =VAR.S(K3:K37)
-6.81 -5.09 Standard Deviation =SQRT(U3)
5.57 5.09 Covariance =COVARIANCE.S(Array 1,Array 2)
2.31 -2.26
-1.13 0.20 Risk free rate (monthly) 0.125
-1.27 -2.24
5.75 7.20
-5.24 -1.09