INVESTMENT DECISION

DATA ANALYSIS
Table of Contents:
Introduction......................................................................................................................................2
Data analysis of marketable securities using statistical techniques.................................................3
Analysis of treasury bills..............................................................................................................3
Interpretation of treasury bills......................................................................................................3
Analysis of treasury bonds...........................................................................................................4
Interpretation of treasury bonds...................................................................................................4
Analysis of corporate bonds.........................................................................................................5
Interpretation of corporate bonds.................................................................................................5
Analysis of common stock...........................................................................................................6
Interpretation of common stock...................................................................................................6
Data analysis of companies using statistical techniques..................................................................7
Comparison of Aluminum Company Amer and Allied Signal INC............................................7
Interpretation of Aluminum and Allied Company.......................................................................7
Comparison of Aluminum Amer Company and American Express CO.....................................8
Interpretation of Aluminum and American Express....................................................................8
Comparison of American Express and Allied Signal INC..........................................................9
Interpretation of Allied INC and American Express...................................................................9
Conclusion.....................................................................................................................................10

Table of Figures:
Figure 1 Analysis of treasury bills...................................................................................................3
Figure 2 Analysis of treasury bonds................................................................................................4
Figure 3 Analysis of corporate bonds..............................................................................................5
Figure 4 Analysis of common stock................................................................................................6
Figure 5 Comparison of Aluminum Company with Allied INC.....................................................7
Figure 6 Comparison of Aluminum Company with American Express..........................................8
Figure 7 Comparison of American Express and Allied Signal INC................................................9

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Introduction:
The report is based on an investment decision. It contains data about the expected returns of
some financial instruments like common stock, treasury bills and corporate bonds. It also
contains exhibits that contain the company’s data that floats these types of instruments in the
market. Investments always come with a risk whether minor or major. Hence risk management is
the key to minimize the risk for which company’s study is provided so that risk can be
distributed. Data is just a set of information nothing else. To conclude which option is the best
both in terms of the instrument and the company, some statistical techniques were applied. The
techniques involve some basic ones like average, minimum, maximum and standard deviation.
However understanding the link of one variable on another is not clear when using these
techniques. Hence concepts like coefficient of variable and correlation were also used to declare
if a variable which in this case is inflation influences the marketable securities or not. But that is
not enough to understand it fully. The companies were also analyzed, but through other
techniques. While evaluating organizations methods used include expected return and combined
risk. But these are some broad phenomenon. Concepts like weightage, average, variance and
covariance were also utilized. Using these concepts a conclusion is drawn which will be
provided in detail at the end of the report.

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Data analysis of marketable securities using statistical techniques:
Analysis of treasury bills:

Figure 1 Analysis of treasury bills

Statistics
Variable Minimum Maximum Average Standard Deviation Coeffecient Correlation
treasury bills -0.02 16 4.03 3.51 0.87 0.36

Chart Title
18
16
14
12
10
8
6
4
2
0
0 10 20 30 40 50 60 70 80
-2

Interpretation of treasury bills:

This is the safest option of all of the investment decisions. The reason behind is that it shows the
lowest standard deviation figure which means that there is a minimum risk involved with
investing in this category. Also the correlation figure is quiet low which means for every 0.87 of
risk the earning will be 1 which means risk is less than the earnings in this case. On average the
return is said to be 16 which is less than that of the other options. The graph also suggests not
very attractive returns most of the points lie close to the x axis. So this option might be suitable
because of less but guarantees a low return too.

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Analysis of treasury bonds:

Figure 2 Analysis of treasury bonds

Statistics
Variable Minimum Maximum Average Standard Deviation Coeffecient Correlation
treasury bond -9.18 40.36 5.57 9.21 1.65 -0.14

Chart Title
50

40

30

20

10

0
0 10 20 30 40 50 60 70 80
-10

-20

Interpretation of treasury bonds:

This instrument shows a lot of variation in the later years as the graph suggests. We can see high
and low peaks which does not assure a standard return. The standard deviation figure suggests
great amount of variation and the coefficient of variation suggests greater risk attached to it too.
It provides a maximum figure of 40 which is huge but the average figure is only 5.57 which
means that most of the time it does not provide a handful amount of return. So this involves
higher risk, variation and also not very attractive returns.

Analysis of corporate bonds:

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Figure 3 Analysis of corporate bonds

Statistics
Variable Minimum Maximum Average Standard Deviation Coeffecient Correlation
corporate bond -18.5 42.56 5.82 9.09 1.56 -0.07

Chart Title
50

40

30

20

10

0
0 10 20 30 40 50 60 70 80
-10

-20

-30

Interpretation of corporate bonds:

The corporate bonds show a maximum return of 42.56 but its minimum amount is quiet low too
as it reaches -18.5. This suggests that there is a high degree of variation on the data. Also the
standard deviation figure supports this argument. To coefficient of variation is above 1 too which
associates high risk with the value of return. The correlation is also negative and very low with
that of the inflation. On average the return is yet again not very attractive. Hence this option is
yet risky but the investment is not worth it as it does not assure as high return as the risk.

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Analysis of common stock:

Figure 4 Analysis of common stock

Statistics
Variable Minimum Maximum Average Standard Deviation Coeffecient Correlation
common stock -43.34 53.99 12.96 20.32 1.57 -0.02

Chart Title
60

40

20

0
0 10 20 30 40 50 60 70 80

-20

-40

-60

Interpretation of common stock:

The common stock is the one that shows the greatest return and yet the greatest risk. The
standard deviation figure shows a figure of 20 which is greater than all the other options which
means the risk associated with this option is the highest. The graph also suggests the same by the
variation in its curve. It provides the maximum amount of average return too. The maximum
amount of return can go up to 53.99 which is very huge. Hence this is the best option to make
investment. Although is associated a high risk with itself too but it can be minimized by
investing in different organizations which will minimize the risk involved in making the
investment decision. Which organization is best can be verified by implementing more statistical
measures below.

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Data analysis of companies using statistical techniques:

Comparison of Aluminum Company Amer and Allied Signal INC:

Figure 5 Comparison of Aluminum Company with Allied INC

FIRM WEIGHT AVERAGE EXP RETURN VARIANCE COVARIANCE COMB RISK

A 0.9 0.97 45.17
B 0.1 2.02 1.075 41.61 19.42 5.79

COMPARISON OF A AND B
WEIGHT 1 WEIGHT 2 EXP RETURN COMB RISK
0.9 0.1 1.075 5.79
0.8 0.2 1.180 4.94
0.7 0.3 1.285 4.21
0.6 0.4 1.390 3.69
0.5 0.5 1.495 3.46
0.4 0.6 1.599 3.59
0.3 0.7 1.704 4.04
0.2 0.8 1.809 4.71
0.1 0.9 1.914 5.54

Interpretation of Aluminum and Allied Company:

The combination of weights 0.1 and 0.9 provides the maximum amount of expected return with a
figure of 1.914. The value is highest which guarantees the maximum amount of return from both
the firms. The risk associated with this is quiet high too which 5.54 but not the highest in the
category. The highest combined risk is shown at the complete opposite of weight combination as
0.9 and 0.1. This however provides the lowest return of 1.075. This breaks the link that
maximum risk always provides the maximum return.

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Comparison of Aluminum Amer Company and American Express CO:

Figure 6 Comparison of Aluminum Company with American Express

FIRM WEIGHT AVERAGE EXP RETURN VARIANCE COVARIANCE COMB RISK

A 0.9 0.97 45.17
C 0.1 1.83 1.057 60.00 18.15 5.82

COMAPRISON OF A AND C
WEIGHT 1 WEIGHT 2 EXP RETURN COMB RISK
0.9 0.1 1.06 5.82
0.8 0.2 1.14 5.05
0.7 0.3 1.23 4.46
0.6 0.4 1.31 4.14
0.5 0.5 1.40 4.15
0.4 0.6 1.49 4.48
0.3 0.7 1.57 5.08
0.2 0.8 1.66 5.86
0.1 0.9 1.75 6.77

Interpretation of Aluminum and American Express:

The combination of weights 0.1 and 0.9 as the previous one guarantees the maximum expected
return if invest in these companies. The return is shown with a figure of 1.75 which is
comparatively low if invested in Aluminum Amer and Allied INC, but in this comparison it is
the highest. The same weight also shows the maximum combined risk of 6.67. This however in
this case suggests that there is a link between high risk and high rate of return from the
investment.

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Comparison of American Express and Allied Signal INC:

Figure 7 Comparison of American Express and Allied Signal INC

FIRM WEIGHT AVERAGE EXP RETURN VARIANCE COVARIANCE COMB RISK

B 0.9 2.02 41.61
C 0.1 1.83 2.00 60.00 12.70 5.66

COMPARISON OF B AND C
WEIGHT 1 WEIGHT 2 EXP RETURN COMB RISK
0.9 0.1 2 5.66
0.8 0.2 1.98 5
0.7 0.3 1.96 4.52
0.6 0.4 1.94 4.3
0.5 0.5 1.93 4.37
0.4 0.6 1.91 4.71
0.3 0.7 1.89 5.27
0.2 0.8 1.87 6
0.1 0.9 1.85 6.84

Interpretation of Allied INC and American Express:

In this case the weight combination of 0.9 and 0.1 shows the greatest expected return by
investing in American Express and Allied INC. The expected return figure shows 2 which is
highest among all the options available to make investments that we analyzed before. The
combined risk of 5.56 however as we can see is not the maximum and also very less than the
other options. The expected return also didn’t fall below 1.85 in any weight combination. This
makes the investment returns very consistent and promising.

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Conclusion:
The effects of all the statistical techniques used were deeply analyzed. While analyzing the
investment options many more new techniques such as correlation, expected return and
combined risk were also taken into consideration. Four options of marketable securities were
also analyzed and also interpreted to choose the best choice of investment. After using methods
such as average, minimum maximum, correlation, variation and also standard deviation it is
concluded that the best option is that of the common stocks. The reason is that it provides the
highest return than all the other options. However it also involves highest risk associated with it
but the risk can always be managed. The risk in this particular situation was minimized by
investing in different organizations. Different weights were assigned to a combination of
companies including Aluminum Amer, Allied INC and American Express. Three comparisons
were created. Weights assigned ranged from 0.1 to 0.9. The best combination to buy common
stocks resulted to be the last combination between American Express and Allied Express. The
reason is that it provides the maximum return and also does not comes with the maximum risk
too which makes it the most appropriate one. Also the return doesn’t fall below 1.85 which
provides it consistently high returns. Thus buying common stocks in American Express and
Allied Express would be the most beneficial option.

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