On the next sheet you have been provided 5 year historical data of monthly returns for 12 stocks, for

T-Bills a
1) Estimate the beta of each stock using the correlation multiplied by relative standard deviation formula and t

2) Using regression, estimate the beta for each stock, as well as the associated standard errors, t-statistics and

3) Plot the security characteristic line of ICICI Bank and TCS

4) Decompose the risk associated with the returns of each stock into systematic and diversifiable components.

5) Estimate the beta of an equal-weighted portfolio of the 12 stocks

6) Draw the ex-post security market line and estimate its intercept, slope and R-squared. How well do the stoc

1)
Mean Return, Ri (annualised)

Standard Deviation, σi (annualised)

Correlation with market returns, ρi,m

Covariance with market returns, Covi,m

Beta, βi = ρi,m x σi / σm

Beta, βi = Covi,m / Varm

2)
Beta from time series regressions

Standard error of beta

t-statistics of beta

R-square of regression

3) Month

201204
201205
201206
201207
201208
201209
201210
201211
201212
201301
201302
201303
201304
201305
201306
201307
201308
201309
201310
201311
201312
201401
201402
201403
201404
201405
201406
201407
201408
201409
201410
201411
201412
201501
201502
201503
201504
201505
201506
201507
201508
201509
201510
201511
201512
201601
201602
201603
201604
201605
201606
201607
201608
201609
201610
 201611
201612
201701
201702
201703

4)
Total Variance (annualised), Vari

Systematic Risk = R2 x Vari

Systematic Risk = β2 x Varm

Diversifiable Risk = Total - Systematic

% Systematic risk

% Diversifiable risk

5)
wi

Portfolio beta, βp = ∑wiβi

6)
Mean Return, Ri (annualised)

Beta from time series regressions

Intercept of SML

Slope of SML

R-squared of SML
n provided 5 year historical data of monthly returns for 12 stocks, for T-Bills as well as for the stock market index in India.
k using the correlation multiplied by relative standard deviation formula and the covariance formula

beta for each stock, as well as the associated standard errors, t-statistics and R-square.

line of ICICI Bank and TCS

d with the returns of each stock into systematic and diversifiable components.

weighted portfolio of the 12 stocks

ket line and estimate its intercept, slope and R-squared. How well do the stock betas explain the historical cross-sectional differences

ASIANPAINT BAJAJAUTO BHARTIARTL

=AVERAGE(Ri!B2:B61)*12

=STDEV.S(Ri!B2:B61)*SQRT(12)

=CORREL(Ri!B2:B61,Ri!$N$2:$N$61)

=COVARIANCE.S(Ri!B2:B61,Ri!$N$2:$N$61)*12

=D19*D17/$P$17

=D21/$P$21

ASIANPAINT BAJAJAUTO BHARTIARTL

=SLOPE(Ri!B2:B61,Ri!$N$2:$N$61)

=STEYX(Ri!B2:B61,Ri!$N$2:$N$61)/SQRT(60)/STDEV.P(Ri!$N$2:$N$61)
(do not bother about remembering this formula!)
=D29/D31

=RSQ(Ri!B2:B61,Ri!$N$2:$N$61)

Ri - Rf Rm-Rf
ICICIBANK TCS
 ASIANPAINT BAJAJAUTO BHARTIARTL
=VAR.S(Ri!B2:B61)*12

=D35*D103

=(D29^2)*$P$103

ASIANPAINT BAJAJAUTO BHARTIARTL

=SUMPRODUCT(D119:O119,D31:O31)

ASIANPAINT BAJAJAUTO BHARTIARTL

From above

From above

=INTERCEPT(D125:O125,D127:O127)

=SLOPE(D125:O125,D127:O127)

=RSQ(D125:O125,D127:O127)

f(x) = 0
R² = 0 Security Market Lin
12.000

10.000

8.000
Ri - Rf

6.000

4.000

2.000
 10.000

8.000

Ri - Rf
6.000

4.000

2.000

0.000
0.000 2.000 4.000 6.000
Beta i
ket index in India.

al cross-sectional differences in returns between the 12 stocks?

DRREDDY HDFCBANK ICICIBANK MAHMAH NTPC ONGC POWERGRID

DRREDDY HDFCBANK ICICIBANK MAHMAH NTPC ONGC POWERGRID

f(x) = 0
R² = 0 Security Characteristic Line: ICICIBANK
960%
900%
840%
780%
720%
Ri - Rf

660%
600%
540%
480%
420%
360%
 960%
900%
840%
780%
720%

Ri - Rf
660%
600%
540%
480%
420%
360%
300%
240%
180%
120%
60%
0%
0% 200% 400% 600% 800% 1000% 1200%
Rm - Rf

f(x) = 0
R² = 0 Security Characteristic Line: TCS
960%
900%
840%
780%
720%
Ri - Rf

660%
600%
540%
480%
420%
360%
300%
240%
180%
120%
60%
0%
0% 200% 400% 600% 800% 1000% 1200%
Rm - Rf
 DRREDDY HDFCBANK ICICIBANK MAHMAH NTPC ONGC POWERGRID

DRREDDY HDFCBANK ICICIBANK MAHMAH NTPC ONGC POWERGRID

DRREDDY HDFCBANK ICICIBANK MAHMAH NTPC ONGC POWERGRID

Security Market Line

00 4.000 6.000 8.000 10.000 12.000
Beta i
TCS WIPRO Rm Rf

TCS WIPRO Rm Rf
TCS WIPRO Rm Rf

TCS WIPRO

TCS WIPRO
YEARMON ASIANPAINT BAJAJAUTO BHARTIARTL DRREDDY HDFCBANK ICICIBANK
201204 0.0881 -0.0327 -0.0785 0.0008 0.0426 -0.0065
201205 0.1452 -0.0678 -0.0264 -0.0393 -0.0669 -0.0166
201206 0.0385 0.0390 0.0096 -0.0162 0.1225 0.1470
201207 -0.0631 0.0481 -0.0159 -0.0211 0.0432 0.0680
201208 0.0045 0.0088 -0.1783 0.0438 0.0122 -0.0536
201209 0.0775 0.1344 0.0779 -0.0224 0.0565 0.1627
201210 0.0066 -0.0101 0.0157 0.0665 0.0093 -0.0068
201211 0.1185 0.0643 0.2533 0.0376 0.1089 0.0462
201212 0.0214 0.1038 -0.0604 0.0031 -0.0353 0.0352
201301 0.0185 -0.0484 0.0713 0.0491 -0.0522 0.0471
201302 -0.0470 -0.0277 -0.0467 -0.0822 -0.0277 -0.1264
201303 0.1454 -0.0896 -0.0981 0.0033 -0.0024 0.0049
201304 -0.0473 0.0484 0.0924 0.1458 0.0930 0.1127
201305 0.0390 -0.0314 -0.0540 0.0340 0.0268 0.0763
201306 0.0270 0.0520 -0.0304 0.0587 -0.0376 -0.0732
201307 0.0952 0.0337 0.1836 0.0369 -0.0880 -0.1500
201308 -0.1742 -0.0497 -0.1344 0.0047 -0.0261 -0.1155
201309 0.0970 0.0808 0.0660 0.0394 -0.0002 0.1003
201310 0.1746 0.0708 0.1458 0.0303 0.1444 0.2668
201311 -0.0651 -0.0725 -0.1027 0.0118 -0.0269 -0.0474
201312 -0.0250 -0.0325 0.0099 0.0194 0.0069 0.0286
201401 -0.0377 -0.0041 -0.0463 0.0292 -0.0554 -0.1001
201402 0.0015 0.0210 -0.0877 0.1130 0.0614 0.0558
201403 0.1555 0.0698 0.1092 -0.1174 0.1219 0.1933
201404 -0.0757 -0.0793 0.0274 0.0564 -0.0409 -0.0005
201405 0.0085 0.0207 0.0499 -0.0951 0.1056 0.1395
201406 0.1725 0.1843 -0.0206 0.0682 0.0431 0.0788
201407 0.0615 -0.0820 0.1060 0.0807 0.0150 0.0385
201408 -0.0079 0.0874 -0.0030 0.0512 0.0112 0.0567
201409 0.0112 0.0395 0.0935 0.0937 0.0339 -0.0779
201410 0.0425 0.1107 -0.0147 -0.0204 0.0467 0.1325
201411 0.1334 0.0117 -0.0410 0.1393 0.0496 0.0795
201412 0.0108 -0.0762 -0.0762 -0.0992 -0.0056 0.0059
201501 0.1406 -0.0201 0.0564 -0.0024 0.1303 0.0231
201502 -0.0456 -0.0952 -0.0417 0.0348 -0.0076 -0.0432
201503 -0.0117 -0.0668 0.1027 0.0411 -0.0421 -0.0875
201504 -0.0567 -0.0337 -0.0311 -0.0514 -0.0329 0.0506
201505 0.0316 0.1875 0.1144 0.0679 0.0626 -0.0421
201506 -0.0359 0.0953 -0.0127 0.0050 0.0155 -0.0126
201507 0.1683 0.0133 -0.0031 0.1513 0.0488 -0.0179
201508 -0.0373 -0.1049 -0.1484 0.0601 -0.0747 -0.0807
201509 -0.0088 0.0243 -0.0465 -0.0359 0.0396 -0.0282
201510 -0.0121 0.1038 0.0318 0.0274 0.0263 0.0250
201511 0.0142 -0.0267 -0.0409 -0.2716 -0.0192 -0.0105
201512 0.0516 0.0209 0.0161 -0.0022 0.0063 -0.0461
201601 -0.0170 -0.0756 -0.1477 0.0001 -0.0312 -0.1199
201602 -0.0234 -0.0604 0.0934 -0.0233 -0.0728 -0.1743
201603 0.0237 0.1178 0.1078 0.0012 0.1014 0.2450
201604 -0.0007 0.0326 0.0368 0.0176 0.0571 0.0002
201605 0.1336 0.0541 -0.0334 0.0306 0.0438 0.0363
201606 0.0253 0.0257 0.0412 0.0624 0.0036 0.0018
201607 0.1106 0.0059 -0.0112 -0.1222 0.0593 0.0943
201608 0.0400 0.1032 -0.0798 0.0526 0.0361 -0.0196
201609 0.0025 -0.0499 -0.0536 0.0057 -0.0142 -0.0210
201610 -0.0793 0.0009 0.0146 0.0824 -0.0108 0.0983
201611 -0.0913 -0.0532 0.0184 -0.0495 -0.0472 -0.0437
201612 -0.0809 -0.0186 -0.0590 -0.0427 0.0055 -0.0366
201701 0.0891 0.0774 0.1393 -0.0136 0.0667 0.0539
201702 0.0553 -0.0280 0.0496 -0.0559 0.0804 0.0273
201703 0.0456 0.0179 -0.0416 -0.0764 0.0377 0.0025
MAHMAH NTPC ONGC POWERGRID TCS WIPRO Rm Rf
0.0190 -0.0018 0.0090 0.0306 0.0660 -0.0772 -0.00491 0.00665
-0.0823 -0.0954 -0.0593 -0.0436 0.0007 0.0110 -0.06353 0.00713
0.0847 0.0875 0.1222 0.0668 0.0321 -0.0152 0.07470 0.00670
0.0081 -0.0166 0.0039 0.0450 -0.0265 -0.1488 -0.01112 0.00699
0.0924 0.0700 -0.0338 0.0127 0.0860 0.0815 0.01122 0.00667
0.1298 0.0014 0.0226 0.0132 -0.0396 0.0373 0.07649 0.00629
0.0228 -0.0158 -0.0432 -0.0523 0.0173 -0.0800 -0.01372 0.00656
0.0685 -0.0188 -0.0127 0.0346 -0.0004 0.1202 0.04510 0.00630
-0.0157 -0.0349 0.0289 -0.0297 -0.0414 0.0036 0.00449 0.00631
-0.0427 0.0010 0.2704 -0.0376 0.0693 0.0479 0.02410 0.00714
-0.0216 -0.0374 -0.0774 -0.0400 0.1281 0.0129 -0.05194 0.00617
-0.0114 -0.0344 0.0077 0.0168 0.0377 0.0496 -0.00137 0.00593
0.0718 0.1085 0.0494 0.0590 -0.1244 -0.2042 0.03549 0.00605
0.0458 -0.0191 -0.0003 0.0111 0.0896 -0.0614 0.01313 0.00659
0.0013 -0.0693 0.0099 -0.0220 0.0215 0.0866 -0.01845 0.00574
-0.0428 -0.0912 -0.1188 -0.0919 0.1981 0.2501 -0.00258 0.00731
-0.1438 0.0011 -0.1430 -0.0342 0.1146 0.1066 -0.03753 0.00856
0.0599 0.1400 0.0761 0.0207 -0.0477 -0.0204 0.04082 0.00823
0.0731 0.0034 0.0948 0.0306 0.0963 0.0061 0.09209 0.00730
0.0644 -0.0091 0.0181 -0.0603 -0.0492 -0.0126 -0.01760 0.00676
-0.0022 -0.0716 -0.0169 0.0479 0.0830 0.1871 0.01822 0.00705
-0.0562 -0.0468 -0.0454 -0.0412 0.0319 0.0338 -0.03103 0.00773
0.0932 -0.1092 0.0583 -0.0094 0.0164 0.0379 0.02955 0.00660
0.0074 0.0653 0.1072 0.1252 -0.0636 -0.0907 0.05995 0.00738
0.0933 -0.0308 0.0223 0.0067 0.0287 -0.0380 0.00141 0.00615
0.1477 0.3751 0.1610 0.1513 -0.0206 -0.0326 0.08027 0.00709
-0.0671 -0.0247 0.1202 0.1429 0.1392 0.0791 0.04940 0.00693
0.0608 -0.0699 -0.0669 -0.0460 0.0673 0.0068 0.01893 0.00726
0.1686 -0.0385 0.1007 -0.0260 -0.0204 0.0400 0.02870 0.00632
-0.0317 0.0069 -0.0593 0.0566 0.0846 0.0547 -0.00029 0.00727
-0.0432 0.0815 -0.0099 0.0739 -0.0469 -0.0552 0.04639 0.00587
0.0156 -0.0490 -0.0631 -0.0217 0.0148 0.0391 0.02972 0.00576
-0.0674 0.0105 -0.0875 -0.0288 -0.0334 -0.0541 -0.04163 0.00703
0.0231 -0.0021 0.0300 0.0717 -0.0269 0.1040 0.06122 0.00673
0.0226 0.0888 -0.0754 0.0602 0.0783 0.0873 0.00612 0.00640
-0.0808 -0.0539 -0.0438 -0.0700 -0.0479 -0.0477 -0.04782 0.00672
-0.0354 0.0200 -0.0072 -0.0199 -0.0316 -0.1422 -0.03384 0.00580
0.1005 -0.0905 0.0832 0.0099 0.0584 0.0428 0.03025 0.00613
0.0167 0.0080 -0.0615 -0.0320 -0.0133 -0.0311 -0.00171 0.00656
0.0727 -0.0210 -0.1182 0.0176 -0.0144 0.0590 0.01201 0.00670
-0.1018 -0.1005 -0.1218 -0.0770 0.0220 0.0040 -0.06514 0.00602
0.0309 0.0353 -0.0408 0.0224 0.0088 0.0450 -0.00488 0.00576
-0.0620 0.0723 0.0800 -0.0258 -0.0328 -0.0399 0.01919 0.00548
0.1562 -0.0127 -0.0373 0.0560 -0.0529 -0.0010 -0.01918 0.00524
-0.0700 0.1137 0.0324 0.0386 0.0313 -0.0225 -0.00108 0.00613
-0.0306 -0.0254 -0.0653 0.0453 -0.0173 0.0117 -0.04774 0.00505
-0.0048 -0.1474 -0.1415 -0.1137 -0.0875 -0.0736 -0.07514 0.00426
-0.0140 0.0760 0.1104 0.0692 0.1531 0.0836 0.10172 0.00506
0.1009 0.0776 0.0147 0.0313 0.0056 -0.0171 0.01045 0.00483
-0.0053 0.0321 -0.0310 0.0457 0.0178 -0.0135 0.04145 0.00584
0.0787 0.0918 0.0244 0.0863 0.0008 0.0222 0.01244 0.00581
0.0351 0.0131 0.0169 0.0795 0.0292 -0.0199 0.03897 0.00512
-0.0197 0.0050 0.0999 0.0460 -0.0405 -0.1005 0.01427 0.00561
-0.0223 -0.0573 0.0829 -0.0336 -0.0340 -0.0262 -0.02060 0.00508
-0.0677 0.0253 0.1215 -0.0020 -0.0089 -0.0334 0.00231 0.00472
-0.0952 0.0716 0.0289 0.0909 -0.0511 0.0074 -0.04574 0.00502
-0.0013 0.0095 -0.0063 -0.0445 0.0374 0.0191 -0.00099 0.00522
0.0464 0.0489 0.0559 0.1259 -0.0532 -0.0357 0.03866 0.00510
0.0545 -0.0412 -0.0323 -0.0658 0.1061 0.0782 0.03932 0.00456
-0.0170 0.0175 -0.0432 0.0271 -0.0144 0.0550 0.03052 0.00510