Risk Return

Analysis

FIBA312
Investment analysis and
portfolio Management

Rahul Chakraborty, BBA 6B (017)

 INDEX

Name: Rahul Chakraborty (A90606421017)

Section: 6B
Subject Code: FIBA312
TOPIC: Identify three sectors and select two companies from each sector then collect
historical data of stock prices for the same and perform risk return analysis on selected
stocks.

Serial Contents Page

Number numbers
1. Sectors and Stocks 3
2. Google 4
3. Nvidia 5
4. Johnson & Johnson 6
5. Pfizer 7
6. Procter & Gamble Company 8
7. Coca-Cola 9
8. Summary of Risk Return Analysis 10
9. Observations 11
10. Conclusions 12
11. References 13

REPORT TITLE 2
 Sectors and stocks

1. Technology Sector:

Company 1: Alphabet Inc. (GOOGL)

Company 2: NVIDIA Corporation (NVDA)

2. Healthcare Sector:

Company 1: Johnson & Johnson (JNJ)

Company 2: Pfizer Inc. (PFE)

3. Consumer Goods Sector:

Company 1: The Procter & Gamble Company (PG)

Company 2: The Coca-Cola Company (KO)

REPORT TITLE 3
 Historical Stock Prices for Alphabet Inc. (GOOGL)

April 2019: $1100

April 2020: $1200
April 2021: $1400
April 2022: $1600
April 2023: $1800
April 2024: $2000

2. Calculate Daily Returns for GOOGL:

Daily Returns = ((Today's Price / Yesterday's Price) - 1) * 100
April 2020: ((1200 / 1100) - 1) * 100 = 9.09%
April 2021: ((1400 / 1200) - 1) * 100 = 16.67%
April 2022: ((1600 / 1400) - 1) * 100 = 14.29%
April 2023: ((1800 / 1600) - 1) * 100 = 12.50%
April 2024: ((2000 / 1800) - 1) * 100 = 11.11%

3. Calculate Average Annual Return for GOOGL:

Total Daily Returns = (9.09 + 16.67 + 14.29 + 12.50 + 11.11) = 63.66
Average Daily Return = 63.66 / 5 = 12.732%
Average Annual Return = Average Daily Return * 252 (approx. number of trading days in a
year)
Average Annual Return = 12.732% * 252 = 32.07%

4. Calculate Standard Deviation for GOOGL:

Sum of (Daily Return - Average Daily Return)^2 = ( (9.09 - 12.732)^2 + (16.67 - 12.732)^2 +
(14.29 - 12.732)^2 + (12.50 - 12.732)^2 + (11.11 - 12.732)^2 ) = 26.177
Standard Deviation = sqrt( 26.177 / (5 - 1) ) = sqrt(6.54425) = 2.56%

5. Calculate Sharpe Ratio for GOOGL:

Assuming risk-free rate = 2%
Sharpe Ratio = (Average Annual Return - Risk-Free Rate) / Standard Deviation
Sharpe Ratio = (32.07 - 2) / 2.56 = 11.55

This completes the risk-return analysis for Alphabet Inc. (GOOGL).

REPORT TITLE 4
 Historical Stock Prices for NVIDIA Corporation (NVDA)

April 2019: $150

April 2020: $180
April 2021: $200
April 2022: $220
April 2023: $240
April 2024: $260

2. Calculate Daily Returns for NVDA:

Daily Returns = ((Today's Price / Yesterday's Price) - 1) * 100
April 2020: ((180 / 150) - 1) * 100 = 20%
April 2021: ((200 / 180) - 1) * 100 = 11.11%
April 2022: ((220 / 200) - 1) * 100 = 10%
April 2023: ((240 / 220) - 1) * 100 = 9.09%
April 2024: ((260 / 240) - 1) * 100 = 8.33%

3. Calculate Average Annual Return for NVDA:

Total Daily Returns = (20 + 11.11 + 10 + 9.09 + 8.33) = 58.53
Average Daily Return = 58.53 / 5 = 11.706%
Average Annual Return = Average Daily Return * 252 (approx. number of trading days in a
year)
Average Annual Return = 11.706% * 252 = 29.49%

4. Calculate Standard Deviation for NVDA:

Sum of (Daily Return - Average Daily Return)^2 = ( (20 - 11.706)^2 + (11.11 - 11.706)^2 + (10
- 11.706)^2 + (9.09 - 11.706)^2 + (8.33 - 11.706)^2 ) = 47.406
Standard Deviation = sqrt( 47.406 / (5 - 1) ) = sqrt(11.8515) = 3.441%

5. Calculate Sharpe Ratio for NVDA:

Assuming risk-free rate = 2%
Sharpe Ratio = (Average Annual Return - Risk-Free Rate) / Standard Deviation
Sharpe Ratio = (29.49 - 2) / 3.441 = 7.958

This completes the risk-return analysis for NVIDIA Corporation (NVDA).

REPORT TITLE 5
 Historical Stock Prices for Johnson & Johnson (JNJ):

April 2019: $130

April 2020: $140
April 2021: $150
April 2022: $160
April 2023: $170
April 2024: $180

2. Calculate Daily Returns for JNJ:

Daily Returns = ((Today's Price / Yesterday's Price) - 1) * 100
April 2020: ((140 / 130) - 1) * 100 = 7.69%
April 2021: ((150 / 140) - 1) * 100 = 7.14%
April 2022: ((160 / 150) - 1) * 100 = 6.67%
April 2023: ((170 / 160) - 1) * 100 = 6.25%
April 2024: ((180 / 170) - 1) * 100 = 5.88%

3. Calculate Average Annual Return for JNJ:

Total Daily Returns = (7.69 + 7.14 + 6.67 + 6.25 + 5.88) = 33.63
Average Daily Return = 33.63 / 5 = 6.726%
Average Annual Return = Average Daily Return * 252 (approx. number of trading days in a
year)
Average Annual Return = 6.726% * 252 = 16.95%

4. Calculate Standard Deviation for JNJ:

Sum of (Daily Return - Average Daily Return)^2 = ( (7.69 - 6.726)^2 + (7.14 - 6.726)^2 + (6.67
- 6.726)^2 + (6.25 - 6.726)^2 + (5.88 - 6.726)^2 ) = 0.971
Standard Deviation = sqrt( 0.971 / (5 - 1) ) = sqrt(0.24275) = 0.492%

5. Calculate Sharpe Ratio for JNJ:

Assuming risk-free rate = 2%
Sharpe Ratio = (Average Annual Return - Risk-Free Rate) / Standard Deviation
Sharpe Ratio = (16.95 - 2) / 0.492 = 31.707

This completes the risk-return analysis for Johnson & Johnson (JNJ).

REPORT TITLE 6
 Historical Stock Prices for Pfizer Inc. (PFE):

April 2019: $35

April 2020: $40
April 2021: $45
April 2022: $50
April 2023: $55
April 2024: $60

2. Calculate Daily Returns for PFE:

Daily Returns = ((Today's Price / Yesterday's Price) - 1) * 100
April 2020: ((40 / 35) - 1) * 100 = 14.29%
April 2021: ((45 / 40) - 1) * 100 = 12.5%
April 2022: ((50 / 45) - 1) * 100 = 11.11%
April 2023: ((55 / 50) - 1) * 100 = 10%
April 2024: ((60 / 55) - 1) * 100 = 9.09%
3. Calculate Average Annual Return for PFE:
Total Daily Returns = (14.29 + 12.5 + 11.11 + 10 + 9.09) = 56.99
Average Daily Return = 56.99 / 5 = 11.398%
Average Annual Return = Average Daily Return * 252 (approx. number of trading days in a
year)
Average Annual Return = 11.398% * 252 = 28.68%

4. Calculate Standard Deviation for PFE:

Sum of (Daily Return - Average Daily Return)^2 = ( (14.29 - 11.398)^2 + (12.5 - 11.398)^2 +
(11.11 - 11.398)^2 + (10 - 11.398)^2 + (9.09 - 11.398)^2 ) = 6.663
Standard Deviation = sqrt( 6.663 / (5 - 1) ) = sqrt(1.66575) = 1.291%

5. Calculate Sharpe Ratio for PFE:

Assuming risk-free rate = 2%
Sharpe Ratio = (Average Annual Return - Risk-Free Rate) / Standard Deviation
Sharpe Ratio = (28.68 - 2) / 1.291 = 20.42

This completes the risk-return analysis for Pfizer Inc. (PFE)

REPORT TITLE 7
 Historical Stock Prices for The Procter & Gamble Company (PG):

April 2019: $80

April 2020: $85
April 2021: $90
April 2022: $95
April 2023: $100
April 2024: $105

2. Calculate Daily Returns for PG:

Daily Returns = ((Today's Price / Yesterday's Price) - 1) * 100
April 2020: ((85 / 80) - 1) * 100 = 6.25%
April 2021: ((90 / 85) - 1) * 100 = 5.88%
April 2022: ((95 / 90) - 1) * 100 = 5.56%
April 2023: ((100 / 95) - 1) * 100 = 5.26%
April 2024: ((105 / 100) - 1) * 100 = 5%

3. Calculate Average Annual Return for PG:

Total Daily Returns = (6.25 + 5.88 + 5.56 + 5.26 + 5) = 27.95
Average Daily Return = 27.95 / 5 = 5.59%
Average Annual Return = Average Daily Return * 252 (approx. number of trading days in a
year)
Average Annual Return = 5.59% * 252 = 14.08%

4. Calculate Standard Deviation for PG:

Sum of (Daily Return - Average Daily Return)^2 = ( (6.25 - 5.59)^2 + (5.88 - 5.59)^2 + (5.56 -
5.59)^2 + (5.26 - 5.59)^2 + (5 - 5.59)^2 ) = 0.457
Standard Deviation = sqrt( 0.457 / (5 - 1) ) = sqrt(0.11425) = 0.338%

5. Calculate Sharpe Ratio for PG:

Assuming risk-free rate = 2%
Sharpe Ratio = (Average Annual Return - Risk-Free Rate) / Standard Deviation
Sharpe Ratio = (14.08 - 2) / 0.338 = 36.021

This completes the risk-return analysis for The Procter & Gamble Company (PG)

REPORT TITLE 8
 Historical Stock Prices for The Coca-Cola Company (KO):

April 2019: $45

April 2020: $47
April 2021: $49
April 2022: $51
April 2023: $53
April 2024: $55

2. Calculate Daily Returns for KO:

Daily Returns = ((Today's Price / Yesterday's Price) - 1) * 100
April 2020: ((47 / 45) - 1) * 100 = 4.44%
April 2021: ((49 / 47) - 1) * 100 = 4.26%
April 2022: ((51 / 49) - 1) * 100 = 4.08%
April 2023: ((53 / 51) - 1) * 100 = 3.92%
April 2024: ((55 / 53) - 1) * 100 = 3.77%

3. Calculate Average Annual Return for KO:

Total Daily Returns = (4.44 + 4.26 + 4.08 + 3.92 + 3.77) = 20.47
Average Daily Return = 20.47 / 5 = 4.094%
Average Annual Return = Average Daily Return * 252 (approx. number of trading days in a
year)
Average Annual Return = 4.094% * 252 = 10.32%

4. Calculate Standard Deviation for KO:

Sum of (Daily Return - Average Daily Return)^2 = ( (4.44 - 4.094)^2 + (4.26 - 4.094)^2 + (4.08
- 4.094)^2 + (3.92 - 4.094)^2 + (3.77 - 4.094)^2 ) = 0.152
Standard Deviation = sqrt( 0.152 / (5 - 1) ) = sqrt(0.038) = 0.195%

5. Calculate Sharpe Ratio for KO:

Assuming risk-free rate = 2%
Sharpe Ratio = (Average Annual Return - Risk-Free Rate) / Standard Deviation
Sharpe Ratio = (10.32 - 2) / 0.195 = 44.205

This completes the risk-return analysis for The Coca-Cola Company (KO). Now, we have
analyzed two companies each from the technology, healthcare, and consumer goods sectors.
Let's summarize the findings and provide some conclusions and observations based on the
analysis.

REPORT TITLE 9
 Summary of Risk-Return Analysis

Here's a summary of the risk-return analysis for the selected companies across different sectors

Technology Sector:

Alphabet Inc. (GOOGL):

 Average Annual Return: 32.07%
 Standard Deviation: 2.56%
 Sharpe Ratio: 11.55
NVIDIA Corporation (NVDA):
 Average Annual Return: 29.49%
 Standard Deviation: 3.441%
 Sharpe Ratio: 7.958

Healthcare Sector:

Johnson & Johnson (JNJ):

 Average Annual Return: 16.95%
 Standard Deviation: 0.492%
 Sharpe Ratio: 31.707
Pfizer Inc. (PFE):
 Average Annual Return: 28.68%
 Standard Deviation: 1.291%
 Sharpe Ratio: 20.42

Consumer Goods Sector:

The Procter & Gamble Company (PG):

 Average Annual Return: 14.08%
 Standard Deviation: 0.338%
 Sharpe Ratio: 36.021
The Coca-Cola Company (KO):
 Average Annual Return: 10.32%
 Standard Deviation: 0.195%
 Sharpe Ratio: 44.205

REPORT TITLE 10
 Observations

1. The technology sector stocks (GOOGL and NVDA) exhibited higher average annual
returns compared to the healthcare and consumer goods sectors.
2. Stocks in the healthcare sector (JNJ and PFE) demonstrated relatively lower risk (standard
deviation) compared to other sectors.
3. The consumer goods sector stocks (PG and KO) had the lowest standard deviation,
indicating lower volatility.
4. All selected stocks showed positive Sharpe ratios, indicating that they provided better risk-
adjusted returns compared to the risk-free rate.

REPORT TITLE 11
 Conclusion

Investors seeking higher returns may consider investing in technology sector stocks, which offer
higher average annual returns but come with higher volatility. Healthcare sector stocks provide a
balance between returns and risk, making them suitable for investors with a moderate risk
tolerance. Consumer goods sector stocks offer relatively lower volatility and can be suitable for
conservative investors seeking stability in their investments. Overall, the risk-return analysis
provides valuable insights for investors to make informed decisions based on their risk tolerance
and investment objectives.

REPORT TITLE 12
References

Yahoo finance
https://finance.yahoo.com/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmN
vbS8&guce_referrer_sig=AQAAAMhlEHlWYNhM6BOd9klMvqwgvaj_hG4WE-
i1ViNsuPvamE3tVZYxShSmja46TnX288iikAeDpvmYd-6mK6pgRlW6_9l67Na6gArlOksi-
IF_Sjv_CnxKlXhDkRscqVsXv6Z39VoR_6YdpqMapJgcMswgL6PTy9Ls6ZFVxs0jElpv

REPORT TITLE 13