Risk & Return Analysis

1000 Words4 Pages
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Ethan Cromartie

Risk & Return Analysis

BUS 505 Corporate Finance

Certificate of Authorship:

I certify that I am the author of this paper and that nay assistance received in its preparation is fully acknowledged and disclosed in the paper. I have also cited any source from which data, words, or ideas either quoted directly or paraphrased has been used. I also certify that this paper was prepared by me specifically for this course

Ethan Cromartie


Investments held individually.

Nike Inc., has a standard deviation of 8.2, almost double that of the markets. While Nike has been a consistently strong company its average rate of return for the past 10
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This correlation does make sense due to the fact that Nike and Merck’s standard deviations and beta’s are very close together. Both of these companies act in a similar way depending on what the market gives them. The correlation coefficient between the S&P 500 and the 10-year Treasury note is .298, which is not a reasonably strong correlation.

Investments in a portfolio context:

If these stocks were to be placed in a portfolio context it would probably unwise, by adding the T-note and S&P’s beta to the portfolio it actually lowers Nike and Merck’s beta’s to .52. While these are strong stable companies, they do not have an indirect correlation to one another so they would be of no help if the market were to move up or down quickly. The Annual Rate of return would be .103% which is respectable but not as strong if there was a more diversified portfolio. By diversifying the portfolio it should give us the ability to deal with the market risk, that we face with the fluctuation of everyday stock prices. Also because Nike and Merck operate in a global market, we may be able to combat some of the foreign-exchange risk that they may face in a weaker world market versus a stronger one.

"MRK Historical Prices | Merck & Company, Inc. Common St Stock - Yahoo! Finance." Yahoo! Finance - Business Finance, Stock Market, Quotes, News. N.p., n.d. Web. 30 Nov. 2011. .

"NKE Historical Prices | Nike, Inc.
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