Simple Linear Regression, One measure of the risk or volatility of an individual stock is, Basic Statistics

Simple Linear Regression, Basic Statistics

Assignment Help:

One measure of the risk or volatility of an individual stock is the standard deviation of the total return (capital appreciation plus dividends) over several periods of time. Although the standard deviation is easy to compute, it does not take into account the extent to which the price of a given stock varies as a function of a standard market index, such as the S&P 500.As a result, many financial analysts prefer to use another measure of risk referred to as beta. Betas for individual stocks are determined by simple linear regression. The dependent variable is the total return for the stock and the independent variable is the total return for the stock market.* For this case problem we will use the S&P 500 index as the measure of the total return for the stock market, and an estimated regression equation will be developed using monthly data. The beta for the stock is the slope of the estimated regression equation (b1). The data contained in the file named Beta provides the total return (capital appreciation plus dividends) over 36 months for eight widely traded common stocks and the S&P 500.The value of beta for the stock market will always be 1; thus, stocks that tend to rise and fall with the stock market will also have a beta close to 1. Betas greater than 1 indicate that the stock is more volatile than the market, and betas less than 1 indicate that the stock is less volatile than the market. For instance, if a stock has a beta of 1.4, it is 40% more volatile than the market, and if a stock has a beta of .4, it is 60% less volatile than the market.

You have been assigned to analyze the risk characteristics of these stocks. Prepare a report that includes but is not limited to the following items.

a. Compute descriptive statistics for each stock and the S&P 500. Comment on your results. Which stocks are the most volatile?

b. Compute the value of beta for each stock. Which of these stocks would you expect to perform best in an up market? Which would you expect to hold their value best in adown market?

c. Comment on how much of the return for the individual stocks is explained by the market

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages

Simple Linear Regression, Basic Statistics

Related Discussions:- Simple Linear Regression

Amplification, Amplification is the process by which the magnitudes of the ...

Random varisble, what is random variable

CONSUMER BEHAVIOUR, HOW IS IT RELATED

Electric fields, 2. Two disks, each of radius 10.0 cm, are charged so that ...

Basic accounting, Give certain creative assignment for freshers of accounti...

Assignment, Discuss about the scalling techniques

The decision tree costs and benefits of present value, Question: Imagin...

Find value, what is the average value of 1,2,3,4,5

Ti?n luong, # Câu h?i ..

Chi Square and Z tests, What is it that created the numerical relationship ...

Write Your Message!

Featured Services

Online Tutoring

Project Development

Exam Preparation

Course Help

Assignment Help

Popular Subjects

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT