Slide 1Monthly Average Returns (Stock Analysis)Volatility = Standard Deviation (Stock Analysis)Portfolio AnalysisSlide 5Slide 6LAB 3: DETERMINING THE RISK/RETURN OF A CLIENT'S STOCK PORTFOLIO By Linda Che & Anna Carter-HernandezMONTHLY AVERAGE RETURNS (STOCK ANALYSIS) ADM: 0.20% BA: - 0.03% CAT: 1.25% DE: 1.11% GIS: 0.49% GOOG: 0.84% HSY: 0.57% IBM: 1.29% JPM: 0.25% MSFT: 0.39% PG: 0.12% WMT: 0.47%VOLATILITY = STANDARD DEVIATION (STOCK ANALYSIS) HSY: 5.7% IBM: 5.6% JPM: 10.7% MSFT: 8.1% PG: 4.9% WMT: 4.6% ADM: 9.4% BA: 9.1% CAT: 12.5% DE: 10.7% GIS: 4.1% GOOG: 10.3%PORTFOLIO ANALYSIS Mean of monthly returns: 0.5% Standard deviation of monthly returns: 5.65% Annual average returns: 19.59%ADM BA CAT DE GIS GOOG HSY IBM JPM MSFT PG WMT-10.00000%0.00000%10.00000%20.00000%30.00000%40.00000%50.00000%Average Annual MeanStandard DeviationWHAT DO YOU NOTICE ABOUT THE AVERAGE OF THE VOLATILITIES OF THE INDIVIDUAL STOCKS, COMPARED TO THE VOLATILITY OF THE EQUALLY WEIGHTED PORTFOLIO? The average of the volatilities of the individual stocks begins to decrease as more diverse stocks are included in the equally weighted portfolio. The average of the volatilities of the individual stocks relative to the volatility of the portfolio is much greater, as the idiosyncratic risk begins to diminish with
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