Daniel’s Portfolio Risk and Return Case Due date: March 6th
April 28th, 2022
Assignment: Provide a quick rundown of Daniel’s situation. Discuss strategies and goals of how
he can “add value”. Think about issues such as efficiency, risk-return, and how to add value.
Include a recommendation of a portfolio make-up (weights, or even suggestions of other stocks).
1. Estimate and compare the risk and return of each stock and the SPY. Give the monthly
and annual return for each stock (use videos to annualize monthly return). Which stock
appears to be riskiest? How might the expected return of each stock relate to its riskiness?
2. If the portfolio was equally weighted (20% in all stocks and ETF) what is the resulting
portfolio position (risk and return)? How does the variability of each stock affect the
portfolio? How does this relate to your answer in question 1 above? How would the
portfolio risk and return change if 50% of it is in SBUX, 20% in SPY, and 10% in each
of the remainder securities. What is the correlation matrix between stocks? How does
correlation play a part of portfolio construction?
3. Compute the “beta” for each stock. What does beta measure? (Use SPY as the
measurement of the Market). How does the beta rank for each stock? How does this
relate to your previous answers? What is the portfolio beta (for the equally weighed)?
What does it indicate?
4. What is the required rate of return for each stock (CAPM)? What is the CAPM for the
(equally weighed) portfolio? Explain the number and put it into context? (Use the
average Risk-Free rate given below).
5. In what stock(s) (if any) should Daniel invest in? Make a recommendation of what you
would do if you were Daniel. Do you have a different portfolio construction you would
recommend? Why? Would you try something different?
Write this report in sections, make sure each section has a heading. The first section:
Introduction/Summary Section 2: Risk and Return of each individual stock (Q. 1). Section 3:
portfolio risk and return (Q. 2). Section 4: Market risk (Q. 3). Section 5: Expected Return (Q.
4). And finally, Section 6: Conclusion/Recommendation (Q. 5).
he can “add value”. Think about issues such as efficiency, risk-return, and how to add value.
Include a recommendation of a portfolio make-up (weights, or even suggestions of other stocks).
1. Estimate and compare the risk and return of each stock and the SPY. Give the monthly
and annual return for each stock (use videos to annualize monthly return). Which stock
appears to be riskiest? How might the expected return of each stock relate to its riskiness?
2. If the portfolio was equally weighted (20% in all stocks and ETF) what is the resulting
portfolio position (risk and return)? How does the variability of each stock affect the
portfolio? How does this relate to your answer in question 1 above? How would the
portfolio risk and return change if 50% of it is in SBUX, 20% in SPY, and 10% in each
of the remainder securities. What is the correlation matrix between stocks? How does
correlation play a part of portfolio construction?
3. Compute the “beta” for each stock. What does beta measure? (Use SPY as the
measurement of the Market). How does the beta rank for each stock? How does this
relate to your previous answers? What is the portfolio beta (for the equally weighed)?
What does it indicate?
4. What is the required rate of return for each stock (CAPM)? What is the CAPM for the
(equally weighed) portfolio? Explain the number and put it into context? (Use the
average Risk-Free rate given below).
5. In what stock(s) (if any) should Daniel invest in? Make a recommendation of what you
would do if you were Daniel. Do you have a different portfolio construction you would
recommend? Why? Would you try something different?
Write this report in sections, make sure each section has a heading. The first section:
Introduction/Summary Section 2: Risk and Return of each individual stock (Q. 1). Section 3:
portfolio risk and return (Q. 2). Section 4: Market risk (Q. 3). Section 5: Expected Return (Q.
4). And finally, Section 6: Conclusion/Recommendation (Q. 5).
