Week 8 Assignment - Portfolio Analysis

FINU 607 Week # 8 Assignment and Rubric

Length: 1-2 pages and Excel Spreadsheet

Due: Week #8
Value: 150 Points for 15% of the total course grade
Format: Upload in the Blackboard Assignment Submission by Sunday of Week 8

Background:
Chapters 6 and 7 (week 5) provided an overview to the valuation of stocks and the risk and returns to
investments. This assignment provides students with the opportunity of creating a stock portfolio. Risk
and reward analysis of this portfolio will be conducted using historical prices. Finally, a comparison will be
made to the Capital Asset Pricing Model (CLO#1, CLO #2, CLO #5).

Directions:
You just started your new position as a Portfolio Manager at a wealth management company. You have
been asked to create a stock portfolio to offer clients. Specifically, they would like you to create a 10 stock
portfolio that follows a goal or objective. Given your role and the size of the firm, they have asked you to
select the investments and run risk vs. reward analysis. You must classify your portfolio as one of the
following strategies:

1. Conservative: This strategy has a focus on preserving capital. This would include companies
that have been around for a long time, been through market fluctuations, and likely offer income
to shareholders through dividends.

2. Moderate: This strategy has a focus on balancing risk and reward. Designed to preserve
capital, but also take on some risk to have higher returns than inflation. This would include a
combination of medium to large capitalization companies that have proven consistent growth.

3. Aggressive: This strategy is to maximize returns by taking higher risk (relative to other
investments). Designed for clients to stay in over long periods of time to withstand market
fluctuations. The companies in this strategy are likely small to medium in capitalization, relatively
volatile in price, and reinvest earnings to keep up with growth.

The firm has suggested that you adhere to two rules:

1. Select ten stocks that you believe as a portfolio represent the strategy (risk/reward)
2. Always diversify! This can be done by geography, industry, etc.

After selecting your strategy and deciding on your portfolio:

1. Collect price information for a recent 5 year time horizon from Yahoo! Finance
([Link]) as follows:

a. Enter the stock symbol. On that page click “Historical Data”

b. For the time period, enter the “start date” and the “end date” as a recent five year period. For
example: Jan 1, 2018 - Jan 1, 2023. Choose the frequency as monthly.

c. After hitting “Apply” click “Download Data”.

d. Open the downloaded data in an Excel spreadsheet. Delete all the columns except the date
and the adjusted close. This takes into account any stock splits and dividends paid. Label the
FINU 607 Rubric Page 1 of 3
 adjusted close to the name of the stock selected.

e. Enter the next stock symbol in the main search box and search for the next stock. Do this for
all 10 stocks. In addition, do this for the symbol “SPY”, the Exchange Traded Fund (ETF) for the
S&P 500. Use this data to estimate the overall market. Repeat the same steps above for each
stock, maintaining the same time frame. Make sure the first and last prices are in the same rows
and lined up correctly.

2. Convert these stock prices to monthly percent change (hint: create a separate worksheet within
the Excel file).

3. Compute the mean monthly returns and standard deviations for the monthly returns of each of the
stocks. Convert the statistics to annual for easier interpretation (multiply the mean return by 12,
and the standard deviation by square root of 12: √12). You should now have an annual risk
(standard deviation) vs. return for each stock selected.

4. Add a column in your Excel worksheet with the average return across stocks for each month (not
including SPY). As a heading (title), label it “Portfolio”. This is the monthly return of an equally
weighted portfolio of these 10 stocks. Compute the mean and standard deviation of monthly
returns for the equally weighted portfolio. Convert these monthly statistics to annual (see step 3).

5. In addition to the 10 stocks, portfolio, and SPY calculated statistics, look up the symbol “^TNX”.
The current price of the 10-year treasury can be used as a risk-free rate.

6. With all of the statistics gathered, create an Excel plot with the annual standard deviation
(volatility) on the x-axis and annual average return on the y-axis. You should create the Securities
Market Line (SML) with the risk-free rate and market return (SPY). The SML should look similar to
page 268 of the textbook (standard deviation on x-axis). All the axis, data points, should be
labeled and presented in a professional manner.

a. Create three columns on your spreadsheet with the statistics you solved. The first column will
have the ticker (symbol) and “Portfolio”, the second will have annual standard deviation, and the
third will have annual mean return. The table should include all 10 stocks selected, the Portfolio,
SPY, and ^TNX (standard deviation = 0).

b. Highlight the data in the last two columns (standard deviation and mean), choose: > Insert >
Chart > XY Scatter Plot. Complete the chart wizard with labels, titles, and headings.

7. Write a 1-2 page paper with:

● Introduction: Identify the strategy, the goal or objective, and what portfolio you selected.
● Body/Analysis: Compare and contrast the investments from a risk / reward perspective
over the last five years. Describe the graph provided in the spreadsheet created. What
do you notice about the average of the volatilities with the individual stocks compared to
the volatility of the equally weighted portfolio? What is the advantage of owning the
portfolio? What is above, below, and on the SML?
● Conclusion: Summarize the findings from your portfolio analysis. Provide any insight
about future investment.

Deliverables:
Upload the Word document and Excel file to Blackboard Assignments Week 8 folder. Make sure to cite
the sources using APA format.

Rubric: Evaluation Criteria for Week 8 Assignment - Portfolio Analysis

Report Exemplary Proficient Developing Emerging Not Complete

FINU 607 Rubric Page 2 of 3

 Elements 90-100% 80-89% 60-79% 1-59% 0%
30 – 27 26 - 24 23 - 18 17 - 1 0
Clearly and Clearly defines Describes the Vaguely Paper does not
Introduction concisely the strategy, strategy, goals, describes the provide an
of Portfolio introduces the goals, and and provides a strategy, goals, introduction.
strategy, goals, mostly portfolio. or portfolio
and diversified diversified selection.
portfolio. portfolio.
30 – 27 26 - 24 23 - 18 17 - 1 0
Clearly and Fairly clearly Compares Vaguely Analysis of
Portfolio concisely compares the investments and discusses the risk portfolio and
Analysis compares investments and addresses the and reward individual
investments and benefits of a constructed outcomes of the investments is
benefits of a portfolio. portfolio. investments and not provided.
portfolio. portfolio.
30 – 27 26 - 24 23 - 18 17 - 1 0
Clearly Fairly clearly Vaguely identifies Vaguely mentions A conclusion or
summarizes the describes the the findings in the the findings in the summary of the
Conclusion findings in the findings in the analysis. No analysis. No findings is not
analysis. analysis. reference to the reference to the provided.
References References risk/reward risk/reward
risk/reward risk/reward graph. graph.
graph. graph.

30 – 27 26 - 24 23 - 18 17 - 1 0
Data Monthly price Monthly data Monthly data The spreadsheet The student
Collection, data from five from five stocks from five stocks is missing either does not
Risk and stocks are are downloaded. are downloaded. price data, provide data or
Reward downloaded. Returns, Confusion calculations, calculations in a
Calculations, Returns, sd(risk), sd(risk), for around portfolio, and/or Spreadsheet
Conversions for stocks and stocks are risk/reward conversion from (Excel).
portfolio are calculated. calculations, or monthly to
correctly Conversions conversions annual.
calculated. from monthly to exist.
Conversions annual.
from monthly to
annual.
30 – 27 26 - 24 23 - 18 17 - 1 0
Presentation, Risk / Reward Risk / Reward Risk / Reward Vaguely provides Risk / Reward
APA graph and paper graph and paper graph and paper the risk / reward graph is not
Standards, are professional are professional. are presented. graph. Paper provided. Paper
Writing and neat. Axis Paper Paper incorporates is off topic or not
Format, and labeled. Paper incorporates all incorporates some criteria in sufficiently
Mechanics incorporates all criteria in the most criteria in the assignment developed. The
criteria in the assignment the assignment detail. There are paper is difficult
assignment detail at a detail at a numerous to understand
detail at an proficient level. developing level. spelling, with numerous
exemplary level. There are There are grammar, or APA spelling,
There are no minimal grammar, APA, errors. grammar, or
grammar, APA, grammar, APA, or spelling errors. APA errors.
or spelling or spelling
errors. errors.

FINU 607 Rubric Page 3 of 3