Fundamental of investing Stocks and Quotes - MyAssignmenthelp.com

Question: Discuss about the Fundamental of investing Stocks and Quotes. Answer: Using the excel to calculate monthly expected return and standard deviation for all four shares and portfolio: Particulars BHP FMG CBA MLB Portfolio Expected return 0.37% 1.32% 1.54% 2.37% 1.40% Standard deviation 7.54% 13.02% 5.22% 9.82% 5.44% From the overall evaluation of risk-return profile Melbourne IT company is providing the highest return to investors, which could directly increase their profits. In addition, Commonwealth Bank of Australia is identified to be the most viable stock, as risk is relatively lower in comparison with other stocks. Commonwealth Bank of Australia has the expected return of 1.54%, while standard deviation is at the level of 5.22%. Moreover, the portfolio return is relatively higher in comparison to majority of the stocks, while risk is relatively the lowest. Hence, in comparison to other stocks both Commonwealth Bank of Australia and Melbourne IT has performed substantially well which can be utilised by investors to form an adequate portfolio. Th Jasons portfolio returns and risk are adequately acknowledged in the above table, where expected return is 1.40%, while risk is at the level of 5.44%. Outlining the main business of four companies and based on information detecting highest correlation coefficient of two stocks with calculation: BHP Billiton Limited (BHP): BHP Billiton is known for its multinational mining, which is conducted all around the world. The company also specialises in the field of metals and petroleum products, which generates one third of its revenue. Moreover, BHP Billiton is one the largest mining company in the world from the survey conducted in 2015 with an inclusion of being the fourth-largest company in Australia (Asx.com.au 2018). Fortescue Metal (FMG): Fortescue Metal is an Australian Iron ore company, whose operations are conducted allow around the world. Fortescue Metal is the fourth largest Iron ore producer in the world, as it holds the largest iron mining region in Australia (Asx.com.au 2018). The major competitor of Fortescue is BHP Billiton and Rio Tinto, as come the same industry. The company is involved in mining projects and infrastructure building, which has allowed them to accumulate adequate revenue. Commonwealth Bank of Australia (CBA): The Commonwealth Bank of Australia is a multinational bank, whose operation are conducted in New Zealand, Fiji, Asia, USA, and UK. The company falls under banking and financial service industry, where its main operation is to accept deposits, provide loans, and financial service to customers (Asx.com.au 2018). The company provides retail banking service, premium business service, wealth management, and executive services. Melbourne IT (MLB): Melbourne IT is supposed to be an Australian based internet company, whose operations are confined within Australia. The company operates in technological field, where it provide connection to 700,000 Australian business and generate a revenue of A$90 million. The company provides online solution to small and medium business, which helps in smoothing their daily operations (Asx.com.au 2018). Online business solution is provided by the company, which helps small and medium companies to increase their online presence. After evaluating information of all the four companies only BHP Billiton and Fortescue Metal is identified to have common operations. In addition, both the companies operate in same industry and are competitors. This increases the overall correlation between both the companies, which is later supported by excel calculation. Companies having high correlation provide similar return and risk to the investors, which increase volatility of the portfolio. Yin and Li (2014) mentioned that investor use inverse correlation in stock to formulate their portfolio, as its reduces risk from capital volatile market. Correlation BHP returns FMG returns CBA returns MLB returns BHP returns 1 0.670411 0.113041 -0.001712 FMG returns 0.670411 1 -0.003032 -0.069973 CBA returns 0.113041 -0.003032 1 0.006995 MLB returns -0.001712 -0.069973 0.006995 1 From the evaluation of above correlation table, BHP Billiton and Fortescue Metal has the higher correlation coefficient value of 0.670411. This indicates that share value of both companies is interrelated, where increment in value of one share could increase value of another share. This high correlation is present in both the companies, as they operate in same industry. This correlation is taken from excel formula by evaluating returns of both the companies, which directly supports the selection considered by assessing company information. The correlation identified in above information among BHP Billiton and Fortescue Metal is supported with the excel calculation depicted in the table. This indicates that both the companies have highest correlation, which portrays similar return to investors. Depicting the choice better in risk-return profile, while justifying the choice by providing knowledge about diversification: Choice 1 Particulars BHP FMG CBA MLB Weights 10% 30% 20% 40% Expected return 1.69% Standard deviation 5.9% Choice 2 Particulars BHP FMG CBA MLB Weights 40% 20% 30% 10% Expected return 1.11% Standard deviation 5.5% From the evaluation of above table adequate choice could be identified, which might help Jason in improving his returns, while reducing overall risk. The diversification method can be used by investors in reducing total risk from investment, while maintaining adequate level of returns. The portfolio weights are mainly known to be one of the best measure used by investors in reducing risk and generate higher return from investment. Moreover, diversification method is an essential measure, where high risk portfolio is attuned with low risk portfolio to raise return from the investment (Gitman et al. 2015). Hence, after the evaluation Choice 1 is recognised to have better risk-return profile in comparison with Choice 2. The evaluation states that risk level of Choice 2 is relatively lower, while return is near the value of Choice 1. Calculating the expected return and standard deviation of Jansons portfolio: Economic condition Probability BHP FMG CBA MLB Resilient 20% 16% 10% 21% 17% Stagnation 50% 6% 7% 4% 3% Contraction 30% -8% -2% -10% -16% Economic condition Estimated return Deviation Resilient 16.00% 0.34% Stagnation 5.00% 0.02% Contraction -9.00% 0.43% Janson's portfolio Value Expected return 3.00% Variance 0.79% Standard deviation 8.89% Reference Asx.com.au. (2018).Home - Australian Securities Exchange - ASX. [online] Available at: https://www.asx.com.au/ [Accessed 19 Jan. 2018]. Au.finance.yahoo.com. (2018).Business, Investments, Stocks Quotes - Yahoo7 Finance. [online] Available at: https://au.finance.yahoo.com/ [Accessed 19 Jan. 2018]. Gitman, L.J., Joehnk, M.D., Smart, S. and Juchau, R.H., 2015.Fundamentals of investing. Pearson Higher Education AU. Yin, W. and Li, J., 2014. Macroeconomic fundamentals and the exchange rate dynamics: A no-arbitrage macro-finance approach.Journal of International Money and Finance,41, pp.46-64.