Portfolio Management: Risk, Return Analysis of Selected Stocks

This report analyzes the risk and return characteristics of Starbucks, Facebook, and General Motors against the S&P 500 market index over a 28-week period. The analysis reveals that all three stocks underperformed the market index during the selected period, with negative holding period returns. Facebook is identified as the riskiest investment due to its lowest returns and high standard deviation, while Starbucks is considered the most suitable investment among the three due to its better return and lower risk. The report also discusses the impact of economic conditions, political pressure, and company-specific events on the performance of each company, including data regulation concerns for Facebook, raw material costs for General Motors, and underperformance of Starbucks locations.

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Finance portfolio management

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Question 1 - Part C:
The three companies selected for making analysis of risk return characteristics and
performance of each as against the market index, are Starbucks, Facebook and General Motors.
All the three companies come under S&P 500 market index. The return of all selected stock is
negative is investment has been made during the period selected for review. So it can be said that
holding period return of all three stocks will be negative. On the basis of analysis of S&P 500 for
the period selected the weekly return (Discrete) for arithmetic mean was 0.2127% while
geometric mean was 0.1974%. The weekly return of all the three stock is negative as compared
to the weekly returns of the market index. The weekly returns of all three stocks are -0.1179%
for Starbucks, -0.1141% for Facebook and -0.1862% for General Motors that clearly indicates
that all three companies have underperformed as expected from these companies (Harvey 2010).
On looking at the results of standard deviation of three stocks and when compared with
the standard deviation of weekly returns of market index it has been found that the standard
deviation of all three stocks are double the standard deviation of market index. It shows that
investment made in all the three stocks is riskier than the investment made in market. The
standard deviation of Facebook was higher than the standard deviation of three stocks that
indicates that if investment was made in Facebook than returns will deviate more as compared to
returns generated by other stocks. So overall it can be said that Facebook is the most risky stock
as compared to other stock as it provided lowest returns with high variance and standard
deviation. The best suitable investment from the selected three stocks is Starbucks due to it
provides better return as compared to Facebook and General Motors. Also Starbucks has lowest
standard deviation as compared with others that clearly indicates that it is less risky investment.
There can be impact of economic condition, political pressure, industry norms and other events
that has happened in company that can hamper actual performance of the companies. In this
section there will be discussion on the events that took place during the selected period in regards
to all the three companies.
Facebook
It can be analyzed from the given data of stock prices that the share price of Facebook
has recorded a larger decline in the year 2018. The major reason for the decline is large amount
of criticism and concern worldwide relating to the new data regulations. The increasing concerns
around the security of Facebook has also lead to the downfall in it share prices. The company
realizes huge money from showing wide variety of content and gathering data about the people
viewing it. However, these activities have come under the threat with increasing concerns about
the security and privacy of the website. The company has to adopt large-scale changes for
ensuring the security of the posts displayed on its site and this will involve incurring high cost
negatively impacting its profits (Andrew 2018).
General Motors
The decline in the share prices of G&M in the year 2018 as analyzed from the data given
is related with higher costs of raw materials and unfavorable foreign exchange rates within
America. The increase in the prices of steel and aluminum since the beginning of administration
of Trump is held responsible for the drop in its share prices. The significant increase in the

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commodity costs has caused a negative influence on the investors relating to the company’s
future growth prospects. Also, higher traffic could result in increasing the costs of vehicles and
thus leading to significant job cuts (Leslie 2018).
Starbucks
The decline in the share prices of Starbucks can be stated mainly to its underperformance
of its locations in the densely populated areas. It has caused the operations of about its 50 stores
and it is expected that the company aims to shut down its 150 stores by the end of the year 2019.
This is done mainly for restoring the back the growth of its main stores (Sarah 2018).

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References
Andrew, Griffin. 2018. “Facebook Stock Price Plunge: Why The Social Network's Value Is In
Free Fall”. Accessed September 18,
https://www.independent.co.uk/life-style/gadgets-and-tech/news/facebook-stock-price-nasdaq-
mark-zuckerberg-common-share-latest-why-explained-a8465101.html
Harvey, Levine. 2010. Project Portfolio Management: A Practical Guide to Selecting Projects,
Managing Portfolios, and Maximizing Benefits. John Wiley & Sons.
Leslie, Josephs. 2018. “GM cuts 2018 outlook as Trump trade war drives up steel and aluminum
costs”. Accessed September 18, https://www.cnbc.com/2018/07/23/general-motors-earnings-q2-
2018.html
Sarah, Whitten. 2018. “Starbucks shares drop on weak sales forecast, plans to close more than
150 stores next year”. Accessed September 18, https://www.cnbc.com/2018/06/19/starbucks-
shares-fall-3-percent-as-coffee-chain-scales-back-story-growth-sees-1-percent-global-same-
stores-growth-in-third-quarter.html