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Calculate the mean return and standard deviation of return

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Reference no: EM131929207

In this project, you will collect data from Yahoo Finance on monthly returns for the 30 stocks in the DJIA Index. You will also have to collect data on the S&P 500 monthly return (proxy for the market index), and the 13-week Treasury-bill rate (proxy for the risk-free rate). The sample period is 2006.1 - 2015.12 with 120 observations. Then you use Excel to do the following analysis.

1. Calculate the mean return and standard deviation of return for each of the 30 stocks, the market index and the risk-free rate. Using standard deviation as a measure of risk, rank the stocks according to their riskiness?

2. Calculate the correlation coefficients among the 30 stocks, and the correlation coefficients between the market index and each of the 30 stocks.

3. Take any two of the stocks (denoted by stock 1 and stock 2). Construct a portfolio consisting of 40% of stock 1 and 60% of stock 2. Calculate the mean and standard deviation of this portfolio. Compare the standard deviation of the portfolio with that of stocks 1 and 2. Do you find the risk of the portfolio lower than the risks of the individual stocks? Can you change the portfolio weight to further reduce the risk (standard deviation)? Find the portfolio combination that gives the lowest risk? What are this portfolio's mean return and standard deviation?

4. Form an equally weighted portfolio of the 30 stocks. Calculate the mean return and standard deviation of return for this equally-weighted portfolio. Does this portfolio appear to be less risky than the individual stocks?

5. From Yahoo Finance, collect data on the current market capitalization of equity for each of the 30 companies. Using these market capitalization data to construct the value-weighted average portfolio of the 30 stocks. Calculate the mean return and standard deviation of return for this value-weighted portfolio. Does this portfolio appear to be less risky than the individual stocks?

6. Calculate the beta coefficient for each of the 30 stocks. Rank the stocks according to their market (systematic) risks. Do you get the same ranking as in (1)?

7. Calculate the beta coefficient for (a) the portfolio constructed in (3) with 40% of stock 1 and 60% of stock 2; (b) the equally-weighted portfolio of the 30 stocks constructed in (4); and (c) the value-weighted portfolio of the 30 stocks constructed in (5).

8. Estimate the costs of equity capital for these 30 companies.

9. Now collect data from 2016.1 to 2017.12 for these 30 stocks. Compute the average return for the past 24 months and check whether stocks with higher betas in general yield higher returns.

Attachment:- Sample and project.rar

Verified Expert

This assignment deals security analysis of 30 companies with respect to DIJA Sensex . It is an excellent example to understand how security assessment can be made. For this assignment all the data is extracted from yahoo finance DIJA Sensex, and thereby applying excel formula to accomplish this assignment. For these types of assignment you must have fair knowledge about the Sensex markets and its respective components.

Reference no: EM131929207

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len1929207

4/5/2018 3:27:54 AM

You need to report your answers to the questions which are asked in the assignment. You do not have to report the data or the intermediate results. Attached is a sample as well You will also have to collect data on the S&P 500 monthly return (proxy for the market index), and the 13-week Treasury-bill rate (proxy for the risk-free rate). The sample period is 2006.1 – 2015.12 with 120 observations.

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