Sheet1
Date SPY SBUX GM VZ XPO RF
1/1/17 1.79% -0.54% 5.08% -8.19% 3.66% 0.51%
2/1/17 3.93% 2.99% 0.63% 1.27% 13.97% 0.52%
3/1/17 -0.31% 2.67% -4.02% -1.77% -6.08% 0.74%
4/1/17 0.99% 2.86% -2.04% -5.83% 3.13% 0.80%
5/1/17 1.41% 5.91% -2.05% 1.59% 6.50% 0.89%
6/1/17 0.15% -8.33% 2.95% -4.25% 22.87% 0.98%
7/1/17 2.06% -7.43% 3.01% 8.37% -6.99% 1.07%
8/1/17 0.29% 1.63% 1.56% -0.89% 1.81% 1.01%
9/1/17 1.51% -2.10% 10.51% 3.17% 10.75% 1.03%
10/1/17 2.36% 2.10% 6.44% -3.27% 2.32% 1.07%
11/1/17 3.06% 5.43% 0.26% 6.31% 13.96% 1.23%
12/1/17 0.70% -0.67% -4.87% 4.01% 15.89% 1.32%
1/1/18 5.64% -1.08% 3.46% 2.15% 3.11% 1.41%
2/1/18 -3.64% 0.51% -7.22% -11.71% 4.22% 1.57%
3/1/18 -3.13% 1.38% -7.65% 0.17% 3.43% 1.70%
4/1/18 0.52% -0.55% 1.10% 3.20% -4.57% 1.76%
5/1/18 2.43% -1.56% 16.22% -3.40% 8.33% 1.86%
6/1/18 0.13% -13.80% -7.73% 5.54% -4.82% 1.90%
7/1/18 3.70% 7.25% -3.78% 2.64% -0.46% 1.96%
8/1/18 3.19% 2.02% -4.91% 5.29% 6.80% 2.03%
9/1/18 0.14% 6.34% -6.60% -1.80% 7.20% 2.13%
10/1/18 -6.91% 2.52% 8.67% 6.93% -21.71% 2.25%
11/1/18 1.85% 14.50% 3.72% 5.62% -15.13% 2.33%
12/1/18 -9.33% -3.48% -11.86% -6.77% -24.81% 2.37%
1/1/19 8.01% 5.81% 16.65% -2.06% 6.56% 2.37%
2/1/19 3.24% 3.11% 1.18% 3.38% -17.16% 2.39%
3/1/19 1.36% 5.81% -6.03% 3.88% 6.73% 2.40%
4/1/19 4.09% 4.49% 4.99% -3.28% 26.68% 2.38%
5/1/19 -6.38% -2.09% -14.40% -4.97% -23.49% 2.35%
6/1/19 6.44% 10.22% 15.57% 5.12% 10.98% 2.17%
7/1/19 1.51% 12.95% 4.70% -3.26% 16.73% 2.10%
8/1/19 -1.67% 1.97% -8.06% 5.23% 5.01% 1.95%
9/1/19 1.48% -8.43% 1.05% 3.78% 1.00% 1.89%
10/1/19 2.21% -4.37% -0.85% 0.18% 6.75% 1.65%
11/1/19 3.62% 1.03% -3.12% -0.38% 8.23% 1.54%
12/1/19 2.40% 2.91% 1.67% 1.93% -3.62% 1.54%
1/1/20 -0.04% -3.51% -8.77% -3.19% 11.57% 1.52%
2/1/20 -7.92% -7.54% -8.66% -8.88% -16.81% 1.52%
3/1/20 -13.00% -16.18% -31.87% -0.79% -34.09% 0.29%
4/1/20 12.70% 16.72% 7.27% 6.92% 36.90% 0.14%
5/1/20 4.76% 1.64% 16.11% -0.12% 18.09% 0.13%
6/1/20 1.33% -5.64% -2.24% -3.92% -1.98% 0.16%
7/1/20 5.89% 4.00% -1.62% 4.26% -2.89% 0.13%
8/1/20 6.98% 10.38% 19.04% 3.11% 17.66% 0.10%
9/1/20 -4.13% 1.72% -0.13% 0.37% -4.09% 0.11%
10/1/20 -2.49% 1.21% 16.69% -4.20% 6.31% 0.10%
11/1/20 10.88% 12.72% 26.96% 6.00% 18.53% 0.09%
12/1/20 3.26% 9.14% -5.02% -2.75% 11.74% 0.09%
1/1/21 -1.02% -9.51% 21.71% -6.81% -7.37% 0.08%
2/1/21 2.78% 11.59% 1.28% 1.00% 5.61% 0.04%
3/1/21 4.20% 1.15% 11.94% 5.15% 5.75% 0.03%
4/1/21 5.29% 4.78% -0.42% -0.62% 12.83% 0.02%
5/1/21 0.66% -0.53% 3.65% -2.25% 5.61% 0.02%
6/1/21 1.91% -1.82% -0.24% -0.81% -4.79% 0.04%
7/1/21 2.44% 8.60% -3.94% -0.45% -0.86% 0.05%
8/1/21 2.98% -3.24% -13.78% -1.40% 7.66% 0.05%
9/1/21 -4.97% -6.11% 7.55% -1.80% -8.43% 0.04%
10/1/21 7.02% -3.84% 3.26% -1.89% 7.82% 0.05%
11/1/21 -0.80% 3.37% 6.32% -5.13% -15.57% 0.05%
12/1/21 4.26% 6.69% 1.31% 3.36% 6.89% 0.06%
Risk and Return Case - Daniel's Portfolio
Daniel’s Portfolio
Risk and Return Case
Assignment: Provide a quick rundown of Daniel’s situation. Discuss strategies and goals of how
he can “add value”. Think about issues such as efficiency, risk-return, and how to add value.
Include a recommendation of a portfolio make-up (weights, or even suggestions of other stocks).
1. Estimate and compare the risk and return of each stock and the SPY. Give the monthly
and annual return for each stock (use videos to annualize monthly return). Which stock
appears to be riskiest? How might the expected return of each stock relate to its
iskiness?
2. If the portfolio was equally weighted (20% in all stocks and ETF) what is the resulting
portfolio position (risk and return)? How does the variability of each stock affect the
portfolio? How does this relate to your answer in question 1 above? How would the
portfolio risk and return change if 50% of it is in SBUX, 20% in SPY, and 10% in each
of the remainder securities. What is the co
elation matrix between stocks? How does
co
elation play a part of portfolio construction?
3. Compute the “beta” for each stock. What does beta measure? (Use SPY as the
measurement of the Market). How does the beta rank for each stock? How does this
elate to your previous answers? What is the portfolio beta (for the equally weighed)?
What does it indicate?
4. What is the required rate of return for each stock (CAPM)? What is the CAPM for the
(equally weighed) portfolio? Explain the number and put it into context? (Use the
average Risk-Free rate given below).
5. In what stock(s) (if any) should Daniel invest in? Make a recommendation of what you
would do if you were Daniel. Do you have a different portfolio construction you would
ecommend? Why? Would you try something different?
Write this report in sections, make sure each section has a heading.
The first section: Introduction/Summary
Section 2: Risk and Return of each individual stock
(Q. 1). Section 3: portfolio risk and return
(Q. 2). Section 4: Market risk
(Q. 3). Section 5: Expected Return
(Q. 4). And finally,
Section 6: Conclusion/Recommendation (Q. 5).
Scenario
Daniel is a part-time Sta
ucks barista and finance student. As a Sta
ucks employee, part of his
wages was paid in form of RSUs (restricted stock unit)1. Theses RSUs, also known as Bean
Stock will be turned into shares after the employee has worked for 2 continuous years in
Sta
ucks. The reason behind the Bean Stock program is to “turn employees into partners” so
that employees can “share in their financial success2.” After the vesting period of 2 years, the
employee can decide whether to keep the stock or sell the stocks. Daniel has kept his stock for
the last 5 years.
As a finance student, he knows the importance of time value of money and investing early for
etirement. In class he learned that the longer the money has time to accrue the more that
investment will grow. He also knows that there are different investment vehicles that give
different return on investment. One of the first things he learned was the risk and return concept.
To make high returns he has to be willing to take some risk. He could put his money into a
savings account or a money market, a very safe and liquid account, or he could take extra risk
and put his investment in the stock market. Since he already has Sta
ucks’ stock, he decides that
this is the logical move for him. However, he also learned that a rational risk investor will
always invest in a diversify portfolio. He is thinking about investing in other companies diversify
his portfolio. By diversifying his portfolio, he can reduce risk that is inherent of investing in the
stock market.
As an investment novice who also has a financial constraint, he decides to look at a number of
options. He decides to invest in GM, XPO, VZ, and SPY.
General Motors (GM) is an American auto manufacture company who employs over 180,000
people in 5 continents3. GM manufactures 8 different car
ands, among them include Chevrolet,
Buick, GMC and Cadillac. GM
ands themselves as a technological innovator. GM is one of the
first to “mass-produce an affordable electric car” and development of a self-drive car. They are
also making headways to producing a cleaner car. Recently, however, GM has been in the news
for discontinuing several models (mainly sedans) and laying off over 14,000 employees4. This
could however be more of a strategic move than a signal of weak performance.
XPO Logistics Inc (XPO) is a logistic company that assists their customers with their supply
chain and transportation needs5. They help many companies with their online market space and
makes sure that goods reach the attended customers. They have 1,529 locations in 32 countries
and serve 50,000 customers. The continual growth of ecommerce means that XPO’s service will
emain relevant and necessary to those companies looking to enter the ecommerce space.
Verizon Communication (VZ) is one of the largest telecom service providers. In 2017, Fortune
anked them number 166. While Verizon is most known for their wireless products it also owns
well known subsidies such as Yahoo and AOL, and has recently created a new subsidiary called
Oath a media platform provider7. Verizon also recently launched Verizon 5G Network, a faster
internet, in selected cities8. They plan to extend coverage to the rest of the nation in XXXXXXXXXXThey
will be the first company to provide 5G services to the public.
Sta
ucks (SBUX) opened in 1971 in Seattle as a local coffee shop9. Since than it has grown to
over 24,000 stores in 75 different countries. Sta
ucks have over 30 coffee blends using
highquality beans from Latin America, Africa, and Asia. Besides coffee, Sta
ucks also sells tea,
fresh food, and other merchandise. Sta
ucks is known as one of the “World’s Most Valuable
Brand” according to Fo
es as well as “Best Employer.”
Daniel believes in investing in what he knows. He owns a Chevy truck and is a Verizon
customer. Furthermore, he recently became aware of XPO logistics and their importance in the
online market space. Though he has financial constraints and want to receive the most out of his
diversification benefit, he also decides to invest in SPY. SPY is the ticker symbol for SPDR S&P
500 ETF Trust. The SPY is an ETF that follows the S&P 500 Index. The S&P 500 is a
marketvalue index that holds 500 of the largest companies that is listed in the NYSE or Nasdaq
exchange. ETFs are similar to mutual funds that can be traded in exchanges. Daniel believes
since he has financial constraint, holding SPY is a good way to diversify.
He comes to you, an MBA student for help on quantifying his risk and return. Daniel wants to
know the risk profiles of the different companies. Furthermore, he wants to know if the newly
constructed portfolio provides the necessary expected return to compensate for his risk.
Table 1: Monthly Returns for Daniel’s Portfolio and risk-free rate
DATE SPY SBUX GM VZ XPO RF
1/1/ XXXXXXXXXX% -0.54% 5.08% -8.19% 3.66% 0.51%
2/1/ XXXXXXXXXX% 2.99% 0.63% 1.27% 13.97% 0.52%
3/1/ XXXXXXXXXX% 2.67% -4.02% -1.77% -6.08% 0.74%
4/1/ XXXXXXXXXX% 2.86% -2.04% -5.83% 3.13% 0.80%
5/1/ XXXXXXXXXX% 5.91% -2.05% 1.59% 6.50% 0.89%
6/1/ XXXXXXXXXX% -8.33% 2.95% -4.25% 22.87% 0.98%
7/1/ XXXXXXXXXX% -7.43% 3.01% 8.37% -6.99% 1.07%
8/1/ XXXXXXXXXX%