Risk and Return Analysis Essay

1817 Words Jul 23rd, 2012 8 Pages
Risk and Return Analysis Paper
FIN 402

Risk and Return Analysis Paper Creating the right balance of securities in a diversified portfolio is crucial to maximizing return and minimize risk. This can be done through analysis of current and past activity of each product. Through a risk assessment, return analysis, researching the beta of each security, and reviewing the average risk and return, we can determine the weights of our securities and devise the strongest portfolio to limit risk and maximize return. As a team, we decided to remain with our original five investments; Ford, Microsoft, The Home Depot, Procter & Gamble, and UPS to create a strong diversified portfolio that will meet our expectations.
Risk Assessment and
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This is also an investment that would need to be watched very closely and counteracted with a company such as Ford to help minimize risk. Finally, Home Depot strongly follows the market with a beta of .82 with the S&P and Home Depot both beginning and ending the five year comparison with the same numbers; the slight fluctuations occurring intermittently throughout the years. With these observations we see that three of the five investments follow the market closely and two are independent of the market behavior. To minimize the risk it is important to balance these results with the returns of each company. Taking into consideration the lowest and highest points throughout the last 52 weeks. The change for Microsoft is .51% while the change for The Home Depot, Proctor & Gamble, Ford, and UPS are 7.18%, .95%, -16.87%, and -1.51% respectively (Yahoo Finance, 2011). While UPS and Ford both had a negative change over the last 52 months, one follows the market and one doesn't. The strongest increase was with Home Depot who has a market reflection followed by Proctor & Gamble and Microsoft. Taking all this information into consideration our portfolio will be diversified by giving the following weights to our investments; Proctor and Gamble 30%, Microsoft 30%, Home Depot 15%, UPS 15%, and Ford 10%.
Risk Tolerance Levels and Macroeconomic Variables
Security valuation begins with an economic analysis. An accurate forecast and…