Mini-Case 1

This assignment will require you to analyze time series of monthly returns. Start by retrieving MONTHLY data for the period of 1 January, 2012 ? 31 December, 2016 from Yahoo website for

• ? S&P 500 Index (ticker: ^GSPC)
• ? Chevron Corporation (ticker: CVX)
• ? Verizon Communications Inc. (ticker: VZ) Instructions for downloading the data from Yahoo!: To obtain the monthly data for each company, on Yahoo! Finance website, enter the ticker symbol under Quote Lookup. Then, click on ?Historical Data?. Enter ?Time Period? as given above. For ?Frequency?, make sure Monthly is selected and then click on ?Apply?. Click on ?Download Data?. Instructions for sorting the data by DATE: By default, the data is in descending order (Newest to Oldest). You need to re-sort the data so that the oldest date is at the top of your spreadsheet (i.e. highlight DATE columns and click on DATA and then 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: Keep only Date and Adj Close columns for each company. Put all three sets of data in one excel file to do further analysis. Use the ?Adj 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 return for each month t as follws: Rt = AdjustedCloset ?1 Adjusted Closet?1 Solve for the following:

A. B.

What is the average return, variance and standard deviation of returns for (i) S&P 500, (ii) Verizon, and (iii) Chevron. Comment on the statistics.

Calculate the covariance and the correlation coefficient of returns between (i) S&P 500 and Verizon, (ii) S&P and Chevron, and (iii) Verizon and Chevron. Comment on the statistics.

Page 1 of 2

FIN 5130 Instructor: Dr. Palkar Mini-Case 1

C.

D.

E.

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

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

Calculate Verizon?s beta and Chevron?s beta for the Jan 1 2012 ? Dec 31, 2016 period. Comment on the statistics.

FIN 5130 Mini-Case 1 Instructor: Dr. Palkar Late assignments will not be accepted so please plan accordingly. You need to show your working notes for credit. You must submit your work using excel files (with .xls or .xlsx for credit). You must upload your files on Blackboard under the Assignment Dropbox for credit. This assignment will require you to analyze time series of monthly returns. Start by retrieving MONTHLY data for the period of 1 January, 2012 - 31 December, 2016 from Yahoo website for S&P 500 Index (ticker: ^GSPC) Chevron Corporation (ticker: CVX) Verizon Communications Inc. (ticker: VZ) Instructions for downloading the data from Yahoo!: To obtain the monthly data for each company, on Yahoo! Finance website, enter the ticker symbol under Quote Lookup. Then, click on \"Historical Data\". Enter \"Time Period\" as given above. For \"Frequency\DATA Date 1/3/2012 2/1/2012 3/1/2012 4/2/2012 5/1/2012 6/1/2012 7/2/2012 8/1/2012 9/4/2012 10/1/2012 11/1/2012 12/3/2012 1/2/2013 2/1/2013 3/1/2013 4/1/2013 5/1/2013 6/3/2013 7/1/2013 8/1/2013 9/3/2013 10/1/2013 11/1/2013 12/2/2013 1/2/2014 2/3/2014 3/3/2014 4/1/2014 5/1/2014 6/2/2014 7/1/2014 8/1/2014 9/2/2014 10/1/2014 11/3/2014 12/1/2014 1/2/2015 2/2/2015 3/2/2015 4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/3/2015 9/1/2015 10/1/2015 11/2/2015 MRK 24 NKE GSPC -0.00261305 0.01723943 0.02187488 -0.04230367 0.12310495 0.05796397 -0.02535652 0.05759411 0.01175166 -0.02914750 -0.06698228 0.05642416 -0.01202314 0.04437272 0.06334840 -0.00638294 0.00378164 0.03702901 -0.01826861 0.01584055 -0.05293005 0.10512309 0.01352535 0.05834168 0.07589199 0.00391506 0.03153075 -0.01195353 0.00736391 -0.01918748 0.05939369 -0.00661434 -0.02260459 0.04245774 -0.05266077 0.06145442 -0.02886523 -0.01016172 0.03618653 0.02233038 -0.05792355 0.03565778 -0.08666892 -0.07492646 0.10670171 -0.03018664 -0.0663200 -0.7902320 -0.1823810 -1.7938380 -5.8789750 0.3321510 0.0443040 -1.5881000 -1.8473450 0.4642520 0.4800090 0.1812800 -0.7004450 1.2023160 1.2216800 -1.8390830 -0.0189930 -1.3690930 -0.9471260 3.7849060 0.5202560 0.6469420 -1.1235730 -3.8300860 1.7813870 -3.1768790 -1.4461670 1.0605770 -0.6852230 -1.2065770 -0.1849290 4.2538680 0.8598250 2.1177910 -2.4126480 -2.9294850 1.5487440 0.5927200 -1.7393030 0.5419000 2.1593100 2.5822100 -2.7264250 4.7374190 3.0202520 -0.3765100 0.04058946 0.03133231 -0.00749745 -0.06265073 0.03955498 0.01259757 0.01976337 0.02423615 -0.01978941 0.00284672 0.00706823 0.05042810 0.01106065 0.03598772 0.01808577 0.02076281 -0.01499930 0.04946208 -0.03129802 0.02974952 0.04459575 0.02804947 0.02356279 -0.03558291 0.04311703 0.00693217 0.00620079 0.02103028 0.01905833 -0.01507983 0.03765530 -0.01551384 0.02320146 0.02453359 -0.00418859 -0.03104081 0.05489251 -0.01739611 0.00852082 0.01049138 -0.02101167 0.01974203 -0.06258082 -0.02644283 0.08298312 0.00050487 12/1/2015 0.00502658 -4.4800570 -0.01753019 0.01100990 -0.1958658 0.00991478 0.0023080799 a. i AVERAGE ii VARIANCE 4.7058474264 0.0009106589 iii S.DEVIATION 0.0480424804 2.169296528 NKE is has the highest risk and the lowest returns. 0.0301771259 b. i ii COVARIANCE COR .COEFFICIENT MRK 24 &NKE MRK 24 & GSPC NKE & GSPC -0.0129644957 0.000706978 0.0179600747 -0.1243973948 0.4876436529 0.2743540287 Correration between MRK 24 & NKE show negative relationship while the rest have a postive relationship c i ii AVERAGE RETURN PORTFOLIO S.DEV MRK 24 & GSPC 0.0104623385 0.034031951 d. i ii AVERAGE RETURN PORTFOLIO S.DEV MRK 24, NKE &GSPC -0.0596892387 0.7386619463 iii No, nike is not a good addition because it has increased portfolio risk and lowered the prortfolio expected return e. MRK BETA 0.7763367094 f NKE BETA 19.7220651166 e rest have a postive relationship ed the prortfolio expected return