BE313 Coursework Analysis And Interpretation

Overview of BE313 Coursework

The stock prices of Samsung, Apple and Google since September 27, 2018 are provided below to understand the fluctuations that have taken place in the share prices of the respective companies over the last 22 trading days. The table below shall be helpful in assessing the return during the period between 27^th September, 2018 and 30^th October, 2018.   

Date	Samsung	Apple	Google Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
27-09-18	47500	227.26	1208.53
28-09-18	46450	229.28	1207.64
01-10-18	46350	232.07	1211.53
02-10-18	45700	227.99	1177.07
04-10-18	44700	224.29	1167.83
05-10-18	44700	223.77	1155.92
08-10-18	44950	226.87	1145.17
10-10-18	45300	216.36	1092.16
11-10-18	43100	214.45	1090.74
12-10-18	44000	222.11	1120.54
15-10-18	43800	217.36	1102.44
16-10-18	43600	222.15	1133.08
17-10-18	44150	221.19	1127.59
18-10-18	44050	216.02	1097.91
19-10-18	43900	219.31	1105.18
22-10-18	43550	220.65	1111.37
23-10-18	43050	222.73	1114.91
24-10-18	42550	215.09	1057.12
25-10-18	41000	219.8	1103.59
26-10-18	41000	216.3	1083.75
29-10-18	41400	212.24	1034.73
30-10-18	42350	213.3	1049.51

The above information shows the fluctuation in market prices of the shares of the above three companies. Initial looks make it clear that except Apple Inc. other two companies, i.e. Google and Samsung both have experienced decline in share prices. The decrease in market value of shares of Samsung is quite significant.

Rate of return calculated in the table below for the three companies have considered the fluctuations in prices of respective shares of the companies on each day since 27^th September, 2018 to 30^th October 2018.  

	Samsung	Apple	Google
Date	Price	Return (%)	Price	Return (%)	Price	Return (%)
27-09-18	47500	0.21097	227.26	0.673341	1208.53	0.120125
28-09-18	46450	-2.21053	229.28	0.88885	1207.64	-0.07364
01-10-18	46350	-0.21529	232.07	1.216853	1211.53	0.322116
02-10-18	45700	-1.40237	227.99	-1.75809	1177.07	-2.84434
04-10-18	44700	-2.18818	224.29	-1.62288	1167.83	-0.785
05-10-18	44700	0	223.77	-0.23184	1155.92	-1.01984
08-10-18	44950	0.559284	226.87	1.385351	1145.17	-0.93
10-10-18	45300	0.778643	216.36	-4.63261	1092.16	-4.62901
11-10-18	43100	-4.85651	214.45	-0.88279	1090.74	-0.13002
12-10-18	44000	2.088167	222.11	3.571928	1120.54	2.73209
15-10-18	43800	-0.45455	217.36	-2.13858	1102.44	-1.61529
16-10-18	43600	-0.45662	222.15	2.203717	1133.08	2.77929
17-10-18	44150	1.261468	221.19	-0.43214	1127.59	-0.48452
18-10-18	44050	-0.2265	216.02	-2.33736	1097.91	-2.63216
19-10-18	43900	-0.34052	219.31	1.523007	1105.18	0.662167
22-10-18	43550	-0.79727	220.65	0.611007	1111.37	0.56009
23-10-18	43050	-1.14811	222.73	0.942669	1114.91	0.318526
24-10-18	42550	-1.16144	215.09	-3.43016	1057.12	-5.18338
25-10-18	41000	-3.64277	219.8	2.189781	1103.59	4.395906
26-10-18	41000	0	216.3	-1.59236	1083.75	-1.79777
29-10-18	41400	0.97561	212.24	-1.87702	1034.73	-4.52318
30-10-18	42350	2.294686	213.3	0.499435	1049.51	1.428392

The return calculated from share prices of the company, i.e. by subtracting the opening price of the share from its closing price in a day shows that except Apple the other two companies have significant decline in the share prices in the above period. Though the time between 27 September 2018 and 30 October 2018 is very small for calculation of return on the basis of movement in share prices of any company however, this certainly provides a starting point to the existing as well as future investors to identify the shares of a company or companies to hold on to or invest in the future.     

Calculation of average return and variance are provided below:

	Samsung	Apple	Google
Total return	(5,100.0000)	(8.4000)	(117.9500)
Total return (%)	(10.7368)	(3.6962)	(9.7598)
Average return each days (Total return /33) %	(0.4880)	(0.1680)	(0.4436)
Variance of return	2.520454842	3.893743	5.89070127

From the above table it is clearly visible that out of the above three stocks, i.e. Apple, Samsung and Google, variance in rate of return is highest for Google with 5.89. In comparison both Samsung and Apple have provided stable return to the shareholders with variance of 2.52 and 3.89 respectively. Thus, the return on the shares of Google is most vulnerable to changes. During the above period Samsung end up losing significant value of its share in the stock market. The shares of the company has suffered most degradation in market value over the 22 days period with a loss of 10.74% in the value of the shares. Google has also lost around 9.76% in the value of its shares in last 22 days. Average return of Samsung as well as Google are in negative indicative of declining share prices of these companies between 27^th September, 2018 and 30^th October, 2018.     

It is clear from the average return in the last 22 days as well as the variance in average return that Apple has dominated the other companies as the loss in share value of the company has been lowest out of three companies with loss of 3.70% in the share prices of the company in the above period. Other two companies, namely Samsung and Google have lost significant value of the shares over this period.  

Variance covariance matrix between Samsung and Apple	0.067886
Variance covariance matrix between Samsung and Google	-0.09347
Variance covariance matrix between Apple and Google	0.897327

Part a:

Apple and Google have highest correlation coefficient.

Combinations	Weight Apple	Weight Google	Return	Standard deviation
1	0.4	0.6	0.095547	0.008944
2	0.6	0.4	0.05977	0.008944
3	0.5	0.5	-0.00049	0.039075
4	0.3	0.7	0.113436	0.017888
5	0.7	0.3	0.041882	0.017888
6	0.8	0.2	0.023993	0.065662
7	0.9	0.1	0.006105	0.074606
8	1	0	-0.01178	0.08355
9	0.2	0.8	0.131324	0.011997

Part b:

Apple and Samsung have lowest correlation coefficient.

Combinations	Weight Samsung	Weight Apple	Return	Standard deviation
1	0.4	0.6	0.081552	0.001947
2	0.6	0.4	0.12822	0.025281
3	0.5	0.5	0.104886	0.013614
4	0.3	0.7	0.058218	0.00972
5	0.7	0.3	0.151554	0.036947
6	0.8	0.2	0.174887	0.009785
7	0.9	0.1	0.198221	0.046668
8	1	0	0.221555	0.033119
9	0.2	0.8	0.034884	0.060217

The MEF on the basis of highest coefficient stocks.   

The MEF below is on the basis of two lowest coefficient stocks.

Part a:

The reason that Apple Inc. shall be preferred over Google and Samsung because it the loss in share price is minimum for the company as compared to the other two companies over the 22 days’ period. The shareholders are mainly concerned with the capital appreciation thus, higher the return the better it is for the shareholders.

The relevance of investors’ preference in selection of optimum portfolio for the investors is of huge significance. The risk preference of an investor is key to the determination of the investment options to be chosen for the person. In this case Apple has been the company with least and very insignificant loss in share price thus, the shareholders will prefer the shares of the company out of the three companies.

Part b:

Given an option an investor will not invest in any portfolio or individual stock out of the three companies as the return in all these companies have been negative over the 22 days period. All three companies have experienced decline in the share prices of the company in the last 22 days period.  

It is clear from the share price movements of the three companies that it would be better to choose an individual stock, i.e. Apple over the portfolio involving any one or other two companies as both have not performed well during the period. Thus, only Apple shall be chosen as the expected loss would be minimum for the investors by investing in Apple. Thus, as per the return on investment portfolio theory Apple shall be chosen to minimize the loss on investment.

Part a:

The possibility of borrowing and lending at risk free rate and MEF is mainly dependent on the economic condition of a country. In case the capital is freely available in the market then the lending and borrowing shall take place using risk free rate of interest. MEF on the other hand shall be used for lending and borrowing when there will be scarcity of capital and the capital is not freely available in the market.  

Part b:

Yes, as in that case the investors would prefer investing in risk free assets instead of a stock. Thus, if there is an option available to the investors to invest in risk free assets then they would obviously use that option instead of investing on shares of different companies and other risky investments. The investors have primarily one objective and it is to maximize the return on investment at a specific rate of risk on such investment. Given an option to invest ion risk free assets investors would always chose such option over and above any other option that contains even a slightest of risk.