Report: SHL Stock Performance, Risk Analysis, and Recommendations

This report provides an analysis of Sonic HealthCare Limited (SHL) stock performance in comparison to the S&P/ASX 200 index from 2013 to 2016. It explores the concept of diversification in investment portfolios, highlighting its role in managing risk by combining various assets to minimize overall portfolio risk. The report examines both systematic (market-related) and unsystematic (company-specific) risks associated with SHL, including entrepreneurial judgment, legal and political risks, interest rate risk, and market risk. The findings indicate fluctuations in SHL's share price relative to the index, with periods of outperformance and underperformance. The report concludes with investment recommendations based on the risk-reward profile, suggesting that while SHL offers higher returns, it also carries a higher level of risk, making it unsuitable for risk-averse investors. The report also includes tables that show the average weekly returns, standard deviation of weekly returns, maximum and minimum weekly returns, and risk-to-reward ratio for both SHL and S&P/ASX200.

Running head: FINANCE
Finance
Name of the student
Name of the university
Author note

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Table of Contents
1.0 Introduction..........................................................................................................................2
1.1 Diversification concept with regard to investment portfolio...............................................2
2.0 Performance of SHL shares as compared to Stock market index S&P / ASX 200 over the
period from 2013 – 2016............................................................................................................3
3.0 Discussion title.....................................................................................................................5
3.1 Overview of Sonic HealthCare Limited...............................................................................5
3.2 Unsystematic risk.................................................................................................................6
3.4 Systematic risk.....................................................................................................................6
4.0 Investment conclusion and recommendation.......................................................................7
Reference....................................................................................................................................8

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1.0 Introduction
Sonic HealthCare Limited ( SHL) is the global health care organization that has a well
established reputation for the excellence in the sector of pathology, laboratory medicine and
the radiology services. It has it’s headquarter in Sydney of Australia and the company
became one of the leading providers for healthcare products in Australia (Sonic Healthcare |
Home, 2017).
The main objective of this report is to provide the stock market status of SHL as
compared to the S&P / ASX 200 or the overall share prices of the stock market to analyse the
performance of the company. The report will further state the diversification concept with
regard to the investment portfolio. Moreover, the report will also focus on the systematic as
well as unsystematic risk that are the company is exposed to.
1.1 Diversification concept with regard to investment portfolio
Diversification concept is defined as the result of or act of meeting the variety. In the
investment planning and finance the diversification of portfolio is the strategy of managing
the risk with combining the asset variety to minimize overall risk from the investment
portfolio. The main objective of diversification is managing the risk associated with the
portfolio. A plan for managing the risk shall include the rules of diversification that are
followed strictly. The diversification assists in lowering the volatility level associated with
the portfolio owing to the fact that all the industries, stocks or assets do not fluctuate at the
same time. Holding various types of non-correlated assets can minimize the unsystematic
risks. A close connection is there among the diversification principle and the safety margin
concept. Apart from this, the diversification with regard to the non-correlated assets may
reduce the losses in the bearish market and preserve the capital for investing in the bullish

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market. Only through proper diversification only the optimization of portfolio can be
achieved as the portfolio manager has the option to invest in wider number of risk associated
assets without further increasing the risk beyond the planned risk of the portfolio.
To be more specific, the managers of the portfolio with the target amount for total risk
are allowed to invest large amount of the assets in the risk associated assets with the
diversified portfolio against the non- diversified portfolio. The main reason behind this is
holding various kind of non-correlated assets minimize the portfolio’s total risk. Therefore, it
is said that the only free ride is the diversification option.
2.0 Performance of SHL shares as compared to Stock market index S&P / ASX 200
over the period from 2013 – 2016
The above shown diagram represents the SHL share price as compared to the market
index S&P / ASX 200. The share price of SHL is shown through the Orange line whereas the
share price of S&P / ASX 200 is shown through the blue line. It is identified from the figure
that the share price of share price of SHL is moving upward and reached its top at $ 24 during
April 2015 (Sonic Healthcare | Home, 2017). At that time the share price of S&P /ASX 200

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was $ 19. Further, till August 2015, the share price of SHL was better as compared to that of
the stock market index. However, after that the share price of SHL started falling and became
lower as compared to the stock market index. Gurther, the stock price of SHL was lower at $
14 during February 2016. After that though the share price of the company started rising,
there were lot of fluctuation in the price. However, the company was able to keep its share
price higher as compared to that of stock market index (Asx.com.au/asx, 2017).
The above shown diagram represents the SHL return as compared to the market index
S&P / ASX 200. The return of SHL is shown through the Orange line whereas the return of
S&P / ASX 200 is shown through the blue line.
Table 1
S&P / ASX200 SHL
Average weekly return 0.1383% 0.3769%
Standard deviation of weekly returns 1.7589% 2.7635%
Maximum week return 2.7635% 10.6823%
Minimum week return 0.0000% 9.2518%
Risk-to-reward ratio 12.7191 7.3321

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From the above table it can be identified that the average weekly return of SHL is
considerably higher at 0.379% as compared to that of S&P / ASX 200 at 0.1383%. However,
the risk associated with the return of SHL is higher at 2.7635% as compared to the risk of
market index at 1.7589%. Further, the maximum weekly returns as well as the minimum
weekly returns both are significantly high as compared to that of the S&P / ASX 200 (Sonic
Healthcare | Home, 2017). Where the maximum weekly return of SHL is 10.6823%, the
maximum return of S&P / ASX 200 is 2.7635% and where the the minimum weekly return of
SHL is 9.2518%, the minimum return of S&P / ASX 200 is 0%. However, with the given risk
the return of S&P / ASX 200 is better at 12.7191 as compared to that of SHL at 7.3321
(Asx.com.au/asx, 2017).
3.0 Discussion title
Overview of Sonic HealthCare Limited ( SHL) with respect to systematic and unsystematic
risk
3.1 Overview of Sonic HealthCare Limited
The Sonic HealthCare Limited (SHL) is the global health care organization that has a
well established reputation for the excellence in the sector of pathology, laboratory medicine
and the radiology services having its headquarter in Sydney, Australia. From the analysis of
its share price and return as compared to the share price and return of S&P / ASX 200 over
the period of 2013 to 2016, it is identified that there is not specific trend of return for SHL as
well as S&P / ASX 200 (Sonic Healthcare | Home, 2017). However, with regard to return,
SHL and S&P / ASX 200 both experience fluctuation over the period of 2013 to 2016. At
some point, the share price of SHL was better than S&P / ASX 200 and at some point the
share price of SHL is lower as compared to that of S&P / ASX 200 (Asx.com.au/asx, 2017).

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3.2 Unsystematic risk
The unsystematic risk or the specific risk or the residual risk or the diversifiable risk
is the uncertainty that are associated with industry or the company in which the investor
invests. The unsystematic risk can be minimized though proper diversification. Investors are
aware of some of the potential unsystematic risk; however, it is not possible to be fully aware
of all the risks or be sure about the fact that the risk will take place (Alexandrov, Vyakina &
Skvortsova, 2014). Investors in the health care stocks may be aware of the fact that the major
shift in the government regulations can affect the company’s profitability, however, they are
not sure of the fact that when the regulations will come into effect. Two unsystematic risks
faced by SHL is as follows –
 Entrepreneurship judgement – it is associated with the errors in the judgement of the
organization. for instance, the organization may assess that one product will be in
demand for the next year. However, in practical there may be demand for another
product
 Legal and political risk – the unsystematic risk the company is exposed to is the
changes in the legal and political regulation of government. This risk is not industry
specific rather it is company specific (Waemustafa & Sukri, 2016).
3.4 Systematic risk
The inherent risks in the market or in the market segment are known as the systematic
risk. This risk is also known as the market risk or volatility or un-diversifiable risk. It has the
impact on the entire market and not on the particular industry or stock. The systematic risk is
unpredictable and is not possible to avoid completely (Savor & Wilson, 2016). Further, this
risk cannot be mitigated through diversification, hedging or any appropriate strategy for asset
allocation. Two unsystematic risks faced by SHL is as follows –

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 Risk of interest rate – if the rate of interest goes up or comes down, it will have the
impact on the price of the bond. Therefore, if the company invests in the debt funds,
and the interest rate goes up, the company will buy at higher value.
 Market risk – the company is also exposed to the market risk that is the risk that the
investment value will fall due to various factors of market risk that include the equity
risk, currency risk, commodity risk. It also involves the risks like timing risk, market
risk and legislative risk ((Biswas et al., 2015).
4.0 Investment conclusion and recommendation
It can be concluded from the above discussion that the share price and return of SHL
as compared to that of S&P / ASX 200 over the period of 2013 to 2016, it is identified that
there is not specific trend of return for SHL as well as S&P / ASX 200. However, with regard
to return, SHL and S&P / ASX 200 both experience fluctuation over the period of 2013 to
2016. At some point, the share price of SHL was better than S&P / ASX 200 and at some
point the share price of SHL is lower as compared to that of S&P / ASX 200. If the overall
performance is taken into account the return of SHL is higher but at the same time the risk of
the company’s investment is high. Therefore, the investors with preference of low risk shall
not invest in this company.

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Reference
Savor, P., & Wilson, M. (2016). Earnings announcements and systematic risk. The Journal of
Finance, 71(1), 83-138.
Biswas, A., Oh, P. I., Faulkner, G. E., Bajaj, R. R., Silver, M. A., Mitchell, M. S., & Alter, D.
A. (2015). Sedentary time and its association with risk for disease incidence, mortality, and
hospitalization in adultsa systematic review and meta-analysissedentary time and disease
incidence, mortality, and hospitalization. Annals of internal medicine, 162(2), 123-132.
Waemustafa, W., & Sukri, S. (2016). Systematic and unsystematic risk determinants of
liquidity risk between Islamic and conventional banks.
Alexandrov, G. A., Vyakina, I. V., & Skvortsova, G. G. (2014). Algorithm and method for
determination of unsystematic risk components based on investment climate factors
assessment. Наука и человечество, (6), 157-169.
Sonic Healthcare | Home. (2017). Sonichealthcare.com. Retrieved 16 October 2017, from
https://www.sonichealthcare.com
Asx.com.au/asx. (2017). Asx.com.au. Retrieved 16 October 2017, from
http://www.asx.com.au/asx/statistics/indexInfo.do