Select two stocks and record their daily returns over a four week period. Do the same for the S&P 500 index.
- Compute the sample mean and the sample standard deviation for each stock and the market index.
- Compute the expected return and the standard deviation of the portfolio.
- Compute and graph the combination line.
- Compute the equation for each stock’s characteristic line.
- What is the sample beta for each stock?
- Compute the same residual variance for each stock. What does this statistic tell you?
- Compute the sample coefficient of determination for each stock. What does this statistic tell you?
- Compute the beta for the portfolio.
- Compute the Sharpe index for the market portfolio.
- Compute the Sharpe index for the portfolio. Compare it to the market portfolio and interpret the results.
All answers must be typed, and should align with each of the above questions. Clarity and neatness counts. Include all relevant computer printouts (such as those related to tracking of daily returns) with the project.
Due date is Monday, April 28, 2014