Comprehensive Learning Assessment 2

PORTFOLIO ANALYSIS 1

PORTFOLIO ANALYSIS 2

Portfolio Analysis

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University

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Prof.

Date

Portfolio Analysis

Investing comes with a lot of risk associated with it already but with the pandemic on top it, adds a lot of uncertainty and risk to the market. Hence, in order to make a safe and educated a market as well as individual company study is required before investing. This paper discusses the factors to consider and how to evaluate a company and its performance for investing. Multiple companies with their historic data are analyzed in this paper. Historic data along with aspects like CV (coefficient of variance), mean, variance, standard deviation will be discussed in their paper for various securities.

Amazon Inc, Apple Inc., Berkshire Hathaway, Microsoft corp and Intel Corp are the five securities analyzed in this paper. First the rate of return is calculated for the five securities based on their past 20 years of historical data. (Finance Yahoo, 2020).

The mean, variance and standard deviation was calculated once the yearly rate or return and average yearly price was found. One of the best methods to analyze a portfolio and to come to a meaningful conclusion is to run a mean- variance model on it (Harry, Peter $ William, 2000). Mean is the sum of all values divided by the total number of values. So, to find the of each security the return for their last 20 years was calculated and then it was divided by 20 years. Variance is calculated by the squared difference of the mean and it helps understand the return over the entire period of time. Lastly, standard deviation was calculated which is simply the square root of the calculated variance.

Below are all the calculated mean, variance and standard deviation for all five securities:

The next important aspect calculated is the co-variance and correlation and these helps us understand the relationship between two securities. Correlation value cannot exceed 1 or go below -1 hence it always stays between -1 and 1. A negative value of the correlation between two securities helps us understand that the relationship shared between two securities is not the strongest and it may turn out to be a loss over time (Westfall, 2020). In the portfolio calculation shows in this paper, the relationship between Amazon and Apple and then between Microsoft and Apple have a positive value and is very strong, followed by Berkshire Hathaway and Intel and then Amazon and Microsoft, which also has positive value and strong relationship. All the other combinations and relationships turned out to be weak when compared to the below strong relationships.

Weightage of stocks is very important when managing a portfolio for the best returns possible. It is so important to have the correct weightage of stocks in a portfolio that if not done correctly then it may totally eat up the entire profits of the portfolio. Proper weight distribution of stocks also helps mitigate the risk of losses and betters the chances of good returns (Seralurin, 2019). In the table below the CV (coefficient of variance), mean, variance and standard deviation is calculated and put according to its weightage.

Starting with $1,000,000 dollars in this portfolio, 5 different companies were invested in as discussed above. As first case, the 1 million dollars were equally divided and invested in these 5 securities, therefore the weight of each stock came to be 20% per security, which is 0.2 per security. Now the weightage was changes according to the security that turned the highest return with minimum risk and hence the weightage was distributed for apple to 69% for Apple, for Amazon to 24%, for Microsoft to 3%, for Berkshire Hathaway too 3% and then lastly for Intel to 1%.

With the calculations, Apple’s stock was found to be the one with highest returns and least risks when compared to other securities. Apple’s future plans are to introduce more new products to the market which will eventually soar its stock price even higher and when the historical data of Apple is compared with other securities it clearly shows that it has turned highest profit in 20 years. An initial investment of $200,00 in Apple 20 years ago, would turn it into approx. $2,685,000 today. While the same amount of initial investment in Intel would have led to loss of $30,000 over 20 years.

The graph below shows the ups and downs of each individual security in the portfolio over the 20 year period.

In conclusion, portfolio management is very important for anyone considering to invest in the stock market and looking to maximize gains while minimizing risks. After considering all the aspects and scenarios of the above mentioned portfolio, it is quite evident that this portfolio will turn a huge profit if managed this way and this was calculated on the basis of CV, mean, standard deviation, variance for all 5 securities. With this portfolio and weightage of the above mentioned securities if we would have invested $1,000,000 20 years ago then it would have turned 40% profit today.

References

Apple Inc. Common Stock (AAPL). (n.d.). Retrieved on October 25 from https://www.nasdaq.com/market-activity/stocks/aapl Apple Inc. (APPL). (n.d.). Retrieved on October 25 from https://finance.yahoo.com/quote/AAPL?p=AAPL

Beattie, A. (June 1 , 2020). A Guide to Calculating Return on Investment (ROI). Retrieved on October 25 from

https://www.investopedia.com/articles/basics/10/guide-to-calculating-roi.asp

Chen, J. (June 25 , 2020). Risk-Free Rate of Return. Retrieved on October 25 from

https://www.investopedia.com/terms/r/risk-freerate.asp

Crawford, C. (n.d.). Purpose of Financial Analysis. Retrieved on October 25 from

https://smallbusiness.chron.com/purpose-financial-analysis-59178.html

Hargrave, M. (April 20 , 2020). Weighted Average Cost of Capital – WACC. Retrieved on October 25 from

https://www.investopedia.com/terms/w/wacc.asp

Marriott International, Inc. (MAR). (n.d.). Retrieved on October 25 from

https://finance.yahoo.com/quote/MAR?p=MAR&.tsrc=fin-srch

Microsoft Corporation (MSFT). (n.d.). Retrieved on October 25 from

https://finance.yahoo.com/quote/MSFT?p=MSFT&.tsrc=fin-srch

Nickolas, S. (June 11 , 2019). The Formula for Calculating Beta. Retrieved on October 25 from

https://www.investopedia.com/ask/answers/070615/what-formula-calculating-beta.asp

The Coca-Cola Company (KO). (n.d.). Retrieved on October 25 from

https://finance.yahoo.com/quote/KO?p=KO&.tsrc=fin-srch

Walmart Inc. (WMT). (n.d.). Retrieved on October 25 from

https://finance.yahoo.com/quote/WMT?p=WMT&.tsrc=fin-srch

Zarzycki, N. (March 13 , 2020). The Cost of Debt (And How to Calculate It). Retrieved on October 25 from

https://bench.co/blog/accounting/cost-of-debt/

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