General Guidelines

Objective: Apply various statistical methods including regression analysis to the monthly historical price data of at least three stocks within the S & P 500 index or Dow Jones Choose stocks from different sectors, such as energy, industrials, and financials, etc. Download the data using Yahoo finance or some other data provider to complete the following analysis using MS Excel

Compute the monthly log normal (ln) returns of each stock and the Dow Jownes or S &P 500 index for the years 2010 through 2012 (36 months). Ln (price2/price1). Use the data to compute the sum, mean, variance and standard deviation for each set of log-normal returns. Quantitatively compare the riskiness (variability) of each stock using the coefficient of variation.

Compute the Correlation of each stock return to the S & P 500 index (or Dow Jones). Which stock has the best correlation?

Run a linear regression for each stock to estimate the beta values and the risk free rate of return (y-intercept). Provide a graph with a regression line for each stock.

Sum the log-normal returns for each data set and convert the returns to easy to understand total returns for the three year period (The retursn are currently in log-normal form, so convert them using e ln(x) = X). Next, use the initial and final price for the three year period of each stock to compare the three answers. Explain the differences?

Suppose that you have an initial investment of $100: it reduces to $50 the next year and then it returns to $100 when you sell it at the end of the subsequent year. Calculate the arithmetic and log-normal returns for the two periods. Also, find the mean and standard deviations for each set of returns. Which average return reflects the compounding rate of return and why? What does the other average return describe?

Summarize your finding in a team executive summary and submit the document with a team spreadsheet.

Price: $19.26

Solution: The downloadable solution consists of 13 pages, 626 words and 3 charts.
Deliverable: Word Document