Essay on Alex Sharpe

585 Words Dec 4th, 2014 3 Pages
Alex Sharpe Assignment – T. Jabran

Answer 1.
By comparing both the stocks, the riskiest stock in this case is Reynolds. It has the highest return as well as higher standard deviation and the higher variance. If we compare both stocks, Reynolds is riskier than Hasbro in this case. The higher variance indicates higher chance that the actual return on Reynolds will deviate from the expected return. S&P 500
Standard Deviation

Answer 2.
At individual stock level, Reynolds fluctuates more than Hasboro as it has higher Standard Deviation and higher variance. After calculating the portfolio of both the stocks, it
…show more content…
Basically, we can see that having a stock in a portfolio is better here as stock like Reynolds, which was moving less than the market is now very close to the market movement at .9974.
Furthermore, Hasbro which was moving above the market level is now moving almost with the market at 1.0042.
*Please see the attached excel file for calculations.

Answer 4.
We can’t figure out the riskiness of the stock by just looking at the expected return. In the case of individual stock, Reynolds at 1.87 is giving a higher return compared to Hasbro at 1.18. We wouldn’t know the riskiness unless we look at the standard deviation or the variance of the stock. By comparing the two, Reynolds has a higher variance and standard deviation and will be more risky.
When combined with portfolio, we see the variance has changed. Reynolds, which was more risky with higher variance individually, when combined with portfolio, has a lower variance than Hasbro.
On the other hand, Hasbro, which had considerably less return and variance individually, when combined in a portfolio, has more volatility, hence becoming more risky.

Answer 5.
Alex Sharpe should invest in Portfolio A, consisting of Reynolds and S&P500. Portfolio A gives higher return with lower risk. The standard deviation and the variance are both lower for portfolio A which means

More about Essay on Alex Sharpe

Open Document