Question
Consider two companies. CVS Health Corporation (ticker: CVS, the CEO is Karen Lynch) is a healthcare conglomerate that operates pharmacies, sells health insurance, and provides
Consider two companies. CVS Health Corporation (ticker: CVS, the CEO is Karen Lynch) is a healthcare conglomerate that operates pharmacies, sells health insurance, and provides a variety of other healthcare services. Citigroup (ticker: C, the CEO is Jane Fraser) is a financial services conglomerate that provides both traditional and investment banking services. Find monthly stock price data for both companies for the past 5 years up to and including February 1, 2023. Do the following for both companies: From prices, calculate monthly returns. Calculate average arithmetic monthly and annual returns. Calculate monthly and annual standard deviations. Calculate the covariance of the two stocks’ returns, and the correlation. Using the monthly price data for the S&P 500 for the past 5 years available on Canvas in the AMZN Excel file, compute the beta for each stock (CVS and C) relative to the S&P 500. Compare the beta you have calculated to a published beta from some source such as Yahoo! Finance. How close did you get? Suppose that the risk-free rate is 3.5% and the equity market risk premium for large stocks is 8.7%. What is your estimate of the expected return for each stock? Suppose you want to construct a portfolio of just CVS and C. You want to minimize the standard deviation of this portfolio. How much of your portfolio would you invest in each stock? What is this portfolio's expected return?
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