PQ4 - deviation? 2. Suppose you decide to invest 99% in the...

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FINA 537 Equity Valuation Assignments for practice (No need to submit) You started to run a new hedge fund at January 1991 and you are looking at some of your potential candidates stocks: Vanguard Index Trust, California REIT and Brown Group. Attached Excel file has the past two year’s stock return (1989, 1990) for these three stocks. Answer the following questions: 1. Calculate the standard deviation of the stock returns of California REIT and Brown Group during the past 2 years. How variable are they compared with the Vanguard Index Trust? Which stock appears to be the riskiest based on its standard
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Unformatted text preview: deviation? 2. Suppose you decide to invest 99% in the index fund and 1% in one individual stock. Calculate the variability of this portfolio first using the REIT as the individual stock and then using Brown Group as the individual stock. Which stock appears to be the riskiest in this portfolio context? Explain how this makes sense given your answer to question 1 above. 3. Perform a regression of each stock’s monthly returns on the Index returns to compute a “beta” for each individual stock. How do the betas help you to interpret the results in question 2 above?...
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