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Appendix 1.1: Table 1.1 - Weekly discrete rate of returns Week Date Apple Inc. (AAPL) McDonald's...
| Appendix 1.1: Table 1.1 - Weekly discrete rate of returns | |||||
| Week | Date | Apple Inc. (AAPL) | McDonald's Corporation (MCD) | Southwest Airlines Co. (LUV) | S&P 500 Index (GSPC) |
| 1 | 30-Oct-17 | ||||
| 2 | 6-Nov-17 | 1.2549% | -1.8187% | -1.1872% | -0.2141% |
| 3 | 13-Nov-17 | -2.2355% | 0.6847% | 2.2714% | -0.1336% |
| 4 | 20-Nov-17 | 2.8316% | 1.4330% | 0.7893% | 0.9140% |
| 5 | 27-Nov-17 | -2.2409% | 2.2269% | 8.6687% | 1.5293% |
| 6 | 4-Dec-17 | -0.9841% | 0.7554% | 5.6980% | 0.3512% |
| 7 | 11-Dec-17 | 2.7198% | 0.5289% | 2.3625% | 0.9168% |
| 8 | 18-Dec-17 | 0.5968% | -1.5205% | 1.9672% | 0.2814% |
| 9 | 25-Dec-17 | -3.3001% | 0.4109% | -0.7899% | -0.3626% |
| 10 | 1-Jan-18 | 3.4068% | 1.1225% | -1.7302% | 2.6010% |
| 11 | 8-Jan-18 | 1.1923% | -0.2775% | 1.6204% | 1.5708% |
| 12 | 15-Jan-18 | 0.7741% | 1.4668% | -0.4753% | 0.8635% |
| 13 | 22-Jan-18 | -3.8916% | 1.2742% | -6.5013% | 2.2265% |
| 14 | 29-Jan-18 | -6.4234% | -5.0327% | -3.4767% | -3.8547% |
| 15 | 5-Feb-18 | -2.5435% | -5.0677% | -5.4626% | -5.1620% |
| 16 | 12-Feb-18 | 10.6908% | -1.8712% | 5.0018% | 4.3011% |
| 17 | 19-Feb-18 | 1.7815% | 3.3355% | -0.4815% | 0.5519% |
| 18 | 26-Feb-18 | 0.4004% | -9.0662% | -0.3110% | -2.0402% |
| 19 | 5-Mar-18 | 2.1421% | 6.7192% | 3.2588% | 3.5418% |
| 20 | 12-Mar-18 | -1.0876% | 3.2562% | 2.2327% | -1.2402% |
| 21 | 19-Mar-18 | -7.3475% | -4.5455% | -6.8637% | -5.9502% |
| 22 | 26-Mar-18 | 1.7224% | 0.9033% | 0.9873% | 2.0326% |
| 23 | 2-Apr-18 | 0.3530% | 3.1142% | -3.4742% | -1.3783% |
| 24 | 9-Apr-18 | 3.7739% | 0.2977% | -0.3979% | 1.9900% |
| 25 | 16-Apr-18 | -5.1591% | -1.8302% | -0.5448% | 0.5210% |
| 26 | 23-Apr-18 | -2.0475% | -0.2960% | -2.2640% | -0.0086% |
| 27 | 30-Apr-18 | 13.2468% | 4.2514% | -1.4011% | -0.2431% |
| 28 | 7-May-18 | 2.5939% | 0.2181% | -0.6063% | 2.4142% |
(i) Compute the weekly rate of return and the variance of an equally weighted portfolio formed from the three stocks
(ii) Examine and compare the pattern of the returns of your portfolio with those of the individual stocks, and the stock index. Compare the corresponding variances. Comment on your observations
Solutions
Expert Solution
Answer 1)
Expeceted return of portfolio = W1R1 + W2R2 + W3R3
Similarly Variance of portfolio = W12S12 + W22S22 + W32 S32 + 2.W1s1*W2S2* r12 + 2.W1s1*W3S3* r13 +2.W2S2*W3S3 r23
Where , w1,2,3 = weight of share in stock = 1/3 =0.33
S = standard deviation , R = return and r = correlation
| Week | Date | Apple Inc. (AAPL) | McDonald's Corporation (MCD) | Southwest Airlines Co. (LUV) | S&P 500 Index (GSPC) | Porfolio return |
| 1 | 30-Oct-17 | |||||
| 2 | 6-Nov-17 | 1.25% | -1.82% | -1.19% | -0.21% | -0.58% |
| 3 | 13-Nov-17 | -2.24% | 0.68% | 2.27% | -0.13% | 0.24% |
| 4 | 20-Nov-17 | 2.83% | 1.43% | 0.79% | 0.91% | 1.67% |
| 5 | 27-Nov-17 | -2.24% | 2.23% | 8.67% | 1.53% | 2.86% |
| 6 | 4-Dec-17 | -0.98% | 0.76% | 5.70% | 0.35% | 1.80% |
| 7 | 11-Dec-17 | 2.72% | 0.53% | 2.36% | 0.92% | 1.85% |
| 8 | 18-Dec-17 | 0.60% | -1.52% | 1.97% | 0.28% | 0.34% |
| 9 | 25-Dec-17 | -3.30% | 0.41% | -0.79% | -0.36% | -1.21% |
| 10 | 1-Jan-18 | 3.41% | 1.12% | -1.73% | 2.60% | 0.92% |
| 11 | 8-Jan-18 | 1.19% | -0.28% | 1.62% | 1.57% | 0.84% |
| 12 | 15-Jan-18 | 0.77% | 1.47% | -0.48% | 0.86% | 0.58% |
| 13 | 22-Jan-18 | -3.89% | 1.27% | -6.50% | 2.23% | -3.01% |
| 14 | 29-Jan-18 | -6.42% | -5.03% | -3.48% | -3.85% | -4.93% |
| 15 | 5-Feb-18 | -2.54% | -5.07% | -5.46% | -5.16% | -4.31% |
| 16 | 12-Feb-18 | 10.69% | -1.87% | 5.00% | 4.30% | 4.56% |
| 17 | 19-Feb-18 | 1.78% | 3.34% | -0.48% | 0.55% | 1.53% |
| 18 | 26-Feb-18 | 0.40% | -9.07% | -0.31% | -2.04% | -2.96% |
| 19 | 5-Mar-18 | 2.14% | 6.72% | 3.26% | 3.54% | 4.00% |
| 20 | 12-Mar-18 | -1.09% | 3.26% | 2.23% | -1.24% | 1.45% |
| 21 | 19-Mar-18 | -7.35% | -4.55% | -6.86% | -5.95% | -6.19% |
| 22 | 26-Mar-18 | 1.72% | 0.90% | 0.99% | 2.03% | 1.19% |
| 23 | 2-Apr-18 | 0.35% | 3.11% | -3.47% | -1.38% | 0.00% |
| 24 | 9-Apr-18 | 3.77% | 0.30% | -0.40% | 1.99% | 1.21% |
| 25 | 16-Apr-18 | -5.16% | -1.83% | -0.54% | 0.52% | -2.49% |
| 26 | 23-Apr-18 | -2.05% | -0.30% | -2.26% | -0.01% | -1.52% |
| 27 | 30-Apr-18 | 13.25% | 4.25% | -1.40% | -0.24% | 5.31% |
| 28 | 7-May-18 | 2.59% | 0.22% | -0.61% | 2.41% | 0.73% |
| Avg retrun | 0.45% | 0.02% | -0.04% | 0.22% | 0.14% | |
| Standev | 0.04463214 | 0.032558952 | 0.035295044 | 0.023867817 | 0.0278293 | |
| Variance | 0.001992028 | 0.001060085 | 0.00124574 | 0.000569673 | 0.0007745 | |
| Correlation(APPL MCD) | 0.358725793 | |||||
| Correlation(APPL LUV) | 0.323015812 | |||||
| Correlation(LUV MCD) | 0.327911528 |
Answer 2)
It is very clear that portfolio return is higher than two stock MCDand LUV , but less than APPL and Index.
Similarly , Variance (risk) is less than all three individual stocks .
So, the portfolio is with moderate return and moderate risk category , but not able to cross the INDEX.
Return graph
jeff jeffy answered 2 years agoRelated Solutions
Appendix 1.1: Table 1.1 - Weekly discrete rate of returns Week Date Apple Inc. (AAPL) McDonald's...
Appendix 1.1:
Table 1.1 - Weekly discrete rate of returns
Week
Date
Apple Inc. (AAPL)
McDonald's Corporation (MCD)
Southwest Airlines Co. (LUV)
S&P 500 Index (GSPC)
1
30-Oct-17
2
6-Nov-17
1.2549%
-1.8187%
-1.1872%
-0.2141%
3
13-Nov-17
-2.2355%
0.6847%
2.2714%
-0.1336%
4
20-Nov-17
2.8316%
1.4330%
0.7893%
0.9140%
5
27-Nov-17
-2.2409%
2.2269%
8.6687%
1.5293%
6
4-Dec-17
-0.9841%
0.7554%
5.6980%
0.3512%
7
11-Dec-17
2.7198%
0.5289%
2.3625%
0.9168%
8
18-Dec-17
0.5968%
-1.5205%
1.9672%
0.2814%
9
25-Dec-17
-3.3001%
0.4109%
-0.7899%
-0.3626%
10
1-Jan-18
3.4068%
1.1225%...
Appendix 1.1: Table 1.1 - Weekly discrete rate of returns Week Date Apple Inc. (AAPL) McDonald's...
Appendix 1.1:
Table 1.1 - Weekly discrete rate of returns
Week
Date
Apple Inc. (AAPL)
McDonald's Corporation (MCD)
Southwest Airlines Co. (LUV)
S&P 500 Index (GSPC)
1
30-Oct-17
2
6-Nov-17
1.2549%
-1.8187%
-1.1872%
-0.2141%
3
13-Nov-17
-2.2355%
0.6847%
2.2714%
-0.1336%
4
20-Nov-17
2.8316%
1.4330%
0.7893%
0.9140%
5
27-Nov-17
-2.2409%
2.2269%
8.6687%
1.5293%
6
4-Dec-17
-0.9841%
0.7554%
5.6980%
0.3512%
7
11-Dec-17
2.7198%
0.5289%
2.3625%
0.9168%
8
18-Dec-17
0.5968%
-1.5205%
1.9672%
0.2814%
9
25-Dec-17
-3.3001%
0.4109%
-0.7899%
-0.3626%
10
1-Jan-18
3.4068%
1.1225%...
Appendix 1.1: Table 1.1 - Weekly discrete rate of returns Week Date Apple Inc. (AAPL) McDonald's...
Appendix 1.1:
Table 1.1 - Weekly discrete rate of returns
Week
Date
Apple Inc. (AAPL)
McDonald's Corporation (MCD)
Southwest Airlines Co. (LUV)
S&P 500 Index (GSPC)
1
30-Oct-17
2
6-Nov-17
1.2549%
-1.8187%
-1.1872%
-0.2141%
3
13-Nov-17
-2.2355%
0.6847%
2.2714%
-0.1336%
4
20-Nov-17
2.8316%
1.4330%
0.7893%
0.9140%
5
27-Nov-17
-2.2409%
2.2269%
8.6687%
1.5293%
6
4-Dec-17
-0.9841%
0.7554%
5.6980%
0.3512%
7
11-Dec-17
2.7198%
0.5289%
2.3625%
0.9168%
8
18-Dec-17
0.5968%
-1.5205%
1.9672%
0.2814%
9
25-Dec-17
-3.3001%
0.4109%
-0.7899%
-0.3626%
10
1-Jan-18
3.4068%
1.1225%...
Week Date Apple Inc. (AAPL) McDonald's Corporation (MCD) Southwest Airlines Co. (LUV) S&P 500 Index (GSPC)...
Week
Date
Apple Inc. (AAPL)
McDonald's Corporation (MCD)
Southwest Airlines Co. (LUV)
S&P 500 Index (GSPC)
1
30-Oct-17
2
6-Nov-17
1.2549%
-1.8187%
-1.1872%
-0.2141%
3
13-Nov-17
-2.2355%
0.6847%
2.2714%
-0.1336%
4
20-Nov-17
2.8316%
1.4330%
0.7893%
0.9140%
5
27-Nov-17
-2.2409%
2.2269%
8.6687%
1.5293%
6
4-Dec-17
-0.9841%
0.7554%
5.6980%
0.3512%
7
11-Dec-17
2.7198%
0.5289%
2.3625%
0.9168%
8
18-Dec-17
0.5968%
-1.5205%
1.9672%
0.2814%
9
25-Dec-17
-3.3001%
0.4109%
-0.7899%
-0.3626%
10
1-Jan-18
3.4068%
1.1225%
-1.7302%
2.6010%
11
8-Jan-18
1.1923%
-0.2775%
1.6204%
1.5708%
12
15-Jan-18...
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