Assess the Investment Returns and Risk of a Selected Company Against a Competitor: Investment Assignment, MDIS, Singapore

Assignment Brief:

This is an individual assignment that requires you to assess the investment returns and risk of a selected company against a competitor in the industry for the specified investment time period. The nature of the relationship between the two investments needs to be evaluated to determine whether there is any diversification benefit from investing in both investments instead of one.

Instructions:

1. Select a publicly listed company of your choice. For comparison, identify a competitor from a similar industry and a relevant market index.

2. Obtain the following data for (i) selected company (ii) competitor (iii) market index:

  • Monthly closing share price from 1 July 2019   30 June 2020 (inclusive of both days).
  • Dividends paid for 1 July 2019  30 June 2020.

You can obtain data from websites such as https://finance.yahoo.com/ or http://www.nasdaq.com/.  website or other financial data providers.

3. Using the data gathered in a spreadsheet in Part 2, calculate:

  • The arithmetic average rate of return (%) [Holding-period returns] for each month (Returns comprise of capital gains and dividends).
  • Geometric Average rate of return (%) for the entire holding period from 1 July 2019 30 June 2020.

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4. Based on the computation in Part 3:

  • Present your answer in appropriate tables and/or graphs for (i) selected company (ii) competitor (iii) market index.
  • Analyse the investment performance for the time period being reviewed. Consider comparing with the competitor and market.

5. Determine the investment risk during the holding period from 1 July 2019 30 June 2020.

  • Compute the monthly standard deviation for (i) selected company (ii) competitor (iii) market index.
  • Obtain the beta value from stock data providers (such as Yahoo Finance, Nasdaq or other sources) for (i) selected company (ii) competitor.

6. Based on Part 5:

  • Present your answer in a table or graph for (i) selected company (ii) competitor (iii) market.
  • Analyze the investment risk for the time period being reviewed. Consider comparing with the competitor and market.

7. Compute the correlation between returns and the returns for the competitor. Comment on your findings.

8. Suppose that two different investment portfolio is the setup:

Investment Fund A: 60% investment in the selected company and 40% investment in the competitor.

Investment Fund B: 50% investment in the selected company and 50% investment in the competitor.

Investment Fund C: 30% investment in the selected company and 70% investment in the competitor.

Required:

Compute:

  • Portfolio returns for Fund A, Fund B, and Fund C separately, for the time period under review.
  • Portfolio risk for Fund A, Fund B, and Fund C separately, for the time period under review. Provide your workings with the computations.

Comment on which investment fund performed better and the diversification benefit obtained from the portfolio.

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