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Analyze time series of monthly returns

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Reference no: EM13836753

This assignment will require you to analyze time series of monthly returns. Start by retrieving MONTHLY data for the period of June 30, 2011 - June 30, 2015 from Yahoo website for

  • S&P 500 Index (ticker: ^GSPC)
  • Merck & Co. Inc (ticker: MRK)
  • Nike (ticker: NKE)

Instructions for downloading the data from Yahoo!:

To obtain the monthly data, click on "Historical Prices" on the left panel. Select Date Range. Make sure Monthly is selected and then click on "Get Prices". Scroll down and click on "Download to Spreadsheet".

Instructions for sorting the data by DATE:

Re-sort the data so that the most previous date is at the bottom of your spreadsheet (i.e. highlight DATE columns and click on SORT, make sure you "Expand the selection" is selected, then click on SORT and sort by Date and order by 'Oldest to Newest').

First Calculate Returns:

Use the 'Adjusted Close' column to obtain returns for each period. Remember that the Adjusted Close column has already adjusted the prices for dividends and stock splits so you do not have to adjust for it again. Just use the adjusted close column to obtain the returns.

895_Calculate Returns.jpg

Solve for the following:

A. Calculate the average, variance and standard deviation for the returns of each series. Comment on the statistics.

B. Calculate the covariance and the correlation coefficient between each of the return series (there should be a total of three correlations and three covariances). Comment on the statistics.

C. If you were to form a portfolio that had 50% of the S&P 500 Index and 50% of Merck, what would be the average returns and the standard deviation of that portfolio? (Ignore the fact that both Merck may already be included in the S&P 500)

D. If you were to add Nike to your portfolio so that you now had 33% S&P 500, 33% Merck, and 34% Nike, what would be the new average returns and standard deviation? (Ignore the fact that both Nike and Merck may already be included in the S&P 500) Is Nike a good addition to your portfolio? Why do you think so?

E. Determine MRK's beta.

F. Determine Nike's beta

Reference no: EM13836753

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