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   This assignment will require you to analyze time series of monthly returns. Start by
retrieving MONTHLY data for the period of December 31, 2008 – December 31, 2013
from Yahoo for
S&P 500 Index (ticker: ^GSPC)
Merck & Co. Inc (ticker: MRK)
Nike (ticker: NKE)
Instructions for downloading the data from Yahoo!:
To obtain the monthly data, click on “Historical Prices” on the left panel. Select Date
Range. Make sure Monthly is selected and then click on “Get Prices”. Scroll down and
click on “Download to Spreadsheet”.
For those using MAC: MAC does not automatically save the file as an excel file. So, after
you click on “Download to Spreadsheet”, save the file as a .csv file. Then, open Excel
(select ALL FILES) and open this file in excel. Before you start doing anything, save this
file as a .xls file (.csv file does not retain the formulae and cell references after closing
the file).
Instructions for sorting the data by DATE:
Re-sort the data so that the most previous date is at the bottom of your spreadsheet (i.e.
highlight DATE columns and click on SORT, make sure you “Expand the selection” is
selected, then click on SORT and sort by Date and order by ‘Oldest to Newest’).
Calculating Returns:
Use the ‘Adjusted 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
returns.
1
t 1
t
t
P
P
R
Solve for the following:
A. Calculate the average returns, variance and standard deviation for the returns of
each series. Furthermore, calculate the covariance and the correlation coefficient
between each of the return series (there should be a total of three correlations and
three covariances). Comment on the statistics.
FIN 5080 Instructor: Dr. Palkar
Quiz 5 Extra Credit
Page 2 of 2
B. If you were to form a portfolio that had 50% of the S&P 500 Index and 50% of Merck, what would be the average returns and the standard deviation of that portfolio? (Ignore the fact that both Merck may already be included in the S&P 500)
C. If you were to add Nike to your portfolio so that you now had 33% S&P 500, 33% Merck, and 34% Nike, what would be the new average returns and standard deviation? (Ignore the fact that both Nike and Merck may already be included in the S&P 500) Is Nike a good addition to your portfolio? Why do you think so?
D. Construct a scatter diagram that shows MRK’s returns on the Y-axis and S&P 500 Index returns on the X-axis. Determine MRK’s beta.
E. Construct a scatter diagram that shows NKE’s returns on the Y-axis and S&P 500 Index returns on the X-axis. Determine Nike’s beta.