Mini-Case 1.pdf

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 Closet1 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.

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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 Verizons beta and Chevrons beta for the Jan 1 2012 Dec 31, 2016 period. Comment on the statistics.