Economic Questions

Published: 2017-12-20 08:43:46
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Economic questions and answers

 

Question 1

There are 10 stocks in the portfolio. The stocks are from seven sectors; Financial services, Consumer durables, Energy, Health care, consumer Non-durables, Technology, and Capital goods.

 

Symbol

Market Cap

Industry

Weight

AEL

$1,476,946,968.00

Financial services

13.04%

AIT

$1,960,078,333.50

Consumer Durables

17.30%

ARCH

$1,447,930,120.00

Energy

12.78%

AFI

$443,572,258.08

Consumer Non-Durables

3.92%

AWI

$2,047,404,050.30

Consumer Non-Durables

18.08%

AAC

$180,129,788.80

Health Care

1.59%

AAV

$1,218,446,823.00

Energy

10.76%

ANW

$418,240,787.25

Energy

3.69%

ALJ

$511,923,962.55

Energy

4.52%

AYR

$1,622,222,143.16

Technology

14.32%

 

$11,326,895,234.64

 

100.00%

 

Stock market performance

Question Two

The stock market performance is different between industries at different economic cycles. For instance:

·        A few industries are interest sensitive and do best right on time in a economy recuperation when financing costs have bottomed, so their stocks foresee and begin outflanking late in a subsidence (e.g., budgetary and utilities).

·        Others advantage from expansion and do best when the economy is topping, so their stocks beat beginning amidst the economy recuperation (e.g., vitality, essential materials, and valuable metals).

·        Technology and first-class customer optional enterprises like automobiles and lodging do best amidst a financial recuperation when costs are still direct yet individuals are utilized, so these stocks outflank toward the begin of the economy recuperation.

·        During recession, shopping and health care industry do moderately well in light of the fact that everything else that is all the more financially delicate does much more awful, so these stocks beat close to the economy pinnacle.

 

Question Three

The historical period used in the computations is between January, 1 2016 and November, 7 2016.

      Beta

Stock Beta is computed using the following formula:

 is the return of stock i on month t;

 is the risk free return on month t, normally a 3-month treasury bill serves a good proxy;

 is the market return on month t, normally S&P 500 return serves a good proxy;

 is the beta for stock i;

 is the intercept for stock i;

 is the error term.

To find the beta for stock i, we obtained the data of  as dependent variable Y and  as the independent variable X.  The beta is simply the regression coefficient. The computations for the selected stock are shown below;

AEL

Date

Adj Close

Return

Date

Adj Close

Return

Beta

11/1/2016

15.93

-0.11154

11/1/2016

2085.18

-0.01927

4.045032

10/3/2016

17.93

0.01128

10/3/2016

2126.15

-0.01943

 

9/1/2016

17.73

0.006243

9/1/2016

2168.27

-0.00123

 

8/1/2016

17.62

0.106089

8/1/2016

2170.95

-0.00122

 

7/1/2016

15.93

0.117895

7/1/2016

2173.6

0.03561

 

6/1/2016

14.25

-0.12091

6/1/2016

2098.86

0.000911

 

5/2/2016

16.21

0.157857

5/2/2016

2096.95

0.015325

 

4/1/2016

14

-0.16667

4/1/2016

2065.3

0.002699

 

3/1/2016

16.8

0.235294

3/1/2016

2059.74

0.065991

 

2/1/2016

13.6

-0.25234

2/1/2016

1932.23

-0.00413

 

1/4/2016

18.19

 

1/4/2016

1940.24

 

 

 

AIT

Date

Adj Close

 

Date

Adj Close

 

Beta

11/1/2016

49.2

-0.0315

11/1/2016

2085.18

-0.01927

1.093207

10/3/2016

50.8

0.086863

10/3/2016

2126.15

-0.01943

 

9/1/2016

46.74

-0.01641

9/1/2016

2168.27

-0.00123

 

8/1/2016

47.52

0.018034

8/1/2016

2170.95

-0.00122

 

7/1/2016

46.67822

0.040098

7/1/2016

2173.6

0.03561

 

6/1/2016

44.8787

-0.00133

6/1/2016

2098.86

0.000911

 

5/2/2016

44.93835

-0.00751

5/2/2016

2096.95

0.015325

 

4/1/2016

45.27846

0.055991

4/1/2016

2065.3

0.002699

 

3/1/2016

42.8777

0.127273

3/1/2016

2059.74

0.065991

 

2/1/2016

38.03667

0.008774

2/1/2016

1932.23

-0.00413

 

1/4/2016

37.70585

 

1/4/2016

1940.24

 

 

 

 

ARCH

 

Date

Adj Close

Return

Date

Adj Close

Return

Beta

ARCH

11/1/2016

68

-0.07332

11/1/2016

2085.18

-0.01927

0.526038

 

10/3/2016

73.38

0.046492

10/3/2016

2126.15

-0.01943

 

 

9/1/2016

70.12

-0.00142

9/1/2016

2168.27

-0.00123

 

 

8/1/2016

70.22

0.017681

8/1/2016

2170.95

-0.00122

 

 

7/1/2016

69

0.014706

7/1/2016

2173.6

0.03561

 

 

6/1/2016

68

0.005917

6/1/2016

2098.86

0.000911

 

 

5/3/2016

67.6

0.117355

5/2/2016

2096.95

0.015325

 

 

4/1/2016

60.5

0.018519

4/1/2016

2065.3

0.002699

 

 

3/1/2016

59.4

0.03125

3/1/2016

2059.74

0.065991

 

 

2/1/2016

57.6

0.034669

2/1/2016

1932.23

-0.00413

 

 

1/4/2016

55.67

 

1/4/2016

1940.24

 

 

 

AFI

Date

Adj Close

Return

Date

Adj Close

Return

 

11/1/2016

15.64

-0.03397

11/1/2016

2085.18

-0.01927

5.276814

10/3/2016

16.19

-0.14248

10/3/2016

2126.15

-0.01943

 

9/1/2016

18.88

-0.08438

9/1/2016

2168.27

-0.00123

 

8/1/2016

20.62

0.034621

8/1/2016

2170.95

-0.00122

 

7/1/2016

19.93

0.175811

7/1/2016

2173.6

0.03561

 

6/1/2016

16.95

0.0217

6/1/2016

2098.86

0.000911

 

5/2/2016

16.59

0.139423

5/2/2016

2096.95

0.015325

 

4/1/2016

14.56

0.10303

4/1/2016

2065.3

0.002699

 

3/17/2016

13.2

 

3/1/2016

2059.74

 

 

 

AWI

Date

Adj Close

 

Date

Adj Close

 

 

11/1/2016

36.75

-0.02

11/1/2016

2085.18

-0.01927

2.90003

10/3/2016

37.5

-0.09245

10/3/2016

2126.15

-0.01943

 

9/1/2016

41.32

-0.04946

9/1/2016

2168.27

-0.00123

 

8/1/2016

43.47

0.023546

8/1/2016

2170.95

-0.00122

 

7/1/2016

42.47

0.084802

7/1/2016

2173.6

0.03561

 

6/1/2016

39.15

-0.0532

6/1/2016

2098.86

0.000911

 

5/2/2016

41.35

0.013232

5/2/2016

2096.95

0.015325

 

4/1/2016

40.81

-0.1563

4/1/2016

2065.3

0.002699

 

3/1/2016

48.37

0.193437

3/1/2016

2059.74

0.065991

 

2/1/2016

40.53

0.047828

2/1/2016

1932.23

-0.00413

 

1/4/2016

38.68

 

1/4/2016

1940.24

 

 

 

AAC

Date

Adj Close

Return

Date

Adj Close

Return

 

11/1/2016

7.51

-0.54179

11/1/2016

2085.18

-0.01927

2.372906

10/3/2016

16.39

-0.0575

10/3/2016

2126.15

-0.01943

 

9/1/2016

17.39

-0.11094

9/1/2016

2168.27

-0.00123

 

8/1/2016

19.56

-0.13719

8/1/2016

2170.95

-0.00122

 

7/1/2016

22.67

-0.00657

7/1/2016

2173.6

0.03561

 

6/1/2016

22.82

0.060902

6/1/2016

2098.86

0.000911

 

5/2/2016

21.51

0.044682

5/2/2016

2096.95

0.015325

 

4/1/2016

20.59

0.040424

4/1/2016

2065.3

0.002699

 

3/1/2016

19.79

-0.0299

3/1/2016

2059.74

0.065991

 

2/1/2016

20.4

0.142217

2/1/2016

1932.23

-0.00413

 

1/4/2016

17.86

 

1/4/2016

1940.24

 

 

 

AAV

Date

Adj Close

Return

Date

Adj Close

Return

Beta

11/1/2016

6.4

-0.05185

11/1/2016

2085.18

-0.01927

1.879592

10/3/2016

6.75

-0.03983

10/3/2016

2126.15

-0.01943

 

9/1/2016

7.03

0.029283

9/1/2016

2168.27

-0.00123

 

8/1/2016

6.83

0.075591

8/1/2016

2170.95

-0.00122

 

7/1/2016

6.35

0.135957

7/1/2016

2173.6

0.03561

 

6/1/2016

5.59

-0.05093

6/1/2016

2098.86

0.000911

 

5/2/2016

5.89

0.02972

5/2/2016

2096.95

0.015325

 

4/1/2016

5.72

0.041894

4/1/2016

2065.3

0.002699

 

3/1/2016

5.49

0.08284

3/1/2016

2059.74

0.065991

 

2/1/2016

5.07

-0.07143

2/1/2016

1932.23

-0.00413

 

1/4/2016

5.46

 

1/4/2016

1940.24

 

 

 

ANW

Date

Adj Close

Return

Date

Adj Close

Return

Beta

11/1/2016

8.25

-0.0407

11/1/2016

2085.18

-0.01927

1.355462

10/3/2016

8.6

-0.14

10/3/2016

2126.15

-0.01943

 

9/1/2016

10

0.001001

9/1/2016

2168.27

-0.00123

 

8/1/2016

9.99

0.535075

8/1/2016

2170.95

-0.00122

 

7/1/2016

6.507824

0.185455

7/1/2016

2173.6

0.03561

 

6/1/2016

5.489729

-0.17152

6/1/2016

2098.86

0.000911

 

5/2/2016

6.626291

-0.17164

5/2/2016

2096.95

0.015325

 

4/1/2016

7.999306

0.062087

4/1/2016

2065.3

0.002699

 

3/1/2016

7.531685

0.058611

3/1/2016

2059.74

0.065991

 

2/1/2016

7.114686

0.007022

2/1/2016

1932.23

-0.00413

 

1/4/2016

7.065072

 

1/4/2016

1940.24

 

 

 

ALJ

Date

Adj Close

Return

Date

Adj Close

Return

Beta

11/1/2016

7.17

-0.11042

11/1/2016

2085.18

-0.01927

1.308924

10/3/2016

8.06

0

10/3/2016

2126.15

-0.01943

 

9/1/2016

8.06

-0.01467

9/1/2016

2168.27

-0.00123

 

8/1/2016

8.18

0.180646

8/1/2016

2170.95

-0.00122

 

7/1/2016

6.928411

0.091049

7/1/2016

2173.6

0.03561

 

6/1/2016

6.350227

-0.14172

6/1/2016

2098.86

0.000911

 

5/2/2016

7.398799

-0.26764

5/2/2016

2096.95

0.015325

 

4/1/2016

10.10263

0.017442

4/1/2016

2065.3

0.002699

 

3/1/2016

9.929445

0.046653

3/1/2016

2059.74

0.065991

 

2/1/2016

9.486854

-0.20461

2/1/2016

1932.23

-0.00413

 

1/4/2016

11.9273

 

1/4/2016

1940.24

 

 

 

AYR

Date

Adj Close

Return

Date

Adj Close

Return

Beta

11/1/2016

20.37

-0.00876

11/1/2016

2085.18

-0.01927

1.431672

10/3/2016

20.55

0.034743

10/3/2016

2126.15

-0.01943

 

9/1/2016

19.86

-0.08268

9/1/2016

2168.27

-0.00123

 

8/1/2016

21.65

-0.0148

8/1/2016

2170.95

-0.00122

 

7/1/2016

21.97515

0.135992

7/1/2016

2173.6

0.03561

 

6/1/2016

19.34446

-0.07474

6/1/2016

2098.86

0.000911

 

5/2/2016

20.90705

-0.01489

5/2/2016

2096.95

0.015325

 

4/1/2016

21.22298

-0.02428

4/1/2016

2065.3

0.002699

 

3/1/2016

21.75111

0.108674

3/1/2016

2059.74

0.065991

 

2/1/2016

19.61903

0.182997

2/1/2016

1932.23

-0.00413

 

1/4/2016

16.58417

 

1/4/2016

1940.24

 

 

 

Portfolio Beta

To compute the portfolio beta, the weights of each of the stock in the portfolio is multiplied with the stock beta. The formula is shown below;  Where  is the weight of stock i in the portfolio.

Symbol

Market Cap

Industry

Weight

AEL

$1,476,946,968.00

Financial services

13.04%

AIT

$1,960,078,333.50

Consumer Durables

17.30%

ARCH

$1,447,930,120.00

Energy

12.78%

AFI

$443,572,258.08

Consumer Non-Durables

3.92%

AWI

$2,047,404,050.30

Consumer Non-Durables

18.08%

AAC

$180,129,788.80

Health Care

1.59%

AAV

$1,218,446,823.00

Energy

10.76%

ANW

$418,240,787.25

Energy

3.69%

ALJ

$511,923,962.55

Energy

4.52%

AYR

$1,622,222,143.16

Technology

14.32%

 

$11,326,895,234.64

 

100.00%

 

 

 

 

Computations

 

 

 

Portfolio Beta

2.069169834

 

 

 

Observations on Beta

Beta is considered a measure of the volatility, or systematic risk, of an investment program or security in comparison to a benchmark index. The beta is a measure of the systematic or volatility because of exposure to market movements as opposed to individual security factors. A portfolio systematic risk and volatility measure is considered as beta if it is compared with the benchmark index. A portfolio beta can be high or low when compared with the index. Basically, higher beta compared with index means the portfolio price performance is better. In addition, when a portfolio performance is lower it means that its price performance as compared with the index is lower. Notably, portfolio relative weakness and strength is detected by the beta it has.

Investment beta is computed comparing it with the index, for instance S&P index. When an investment’s beta is 1.5, it basically means that the portfolio is 50% more volatile than the index it is compared with. If investment’s beta is compared with the index, then either the investment will lose or gain by 50%.

sheldon

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