Download Stock Prices Companies - 22 Daily Essay

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Download stock prices companies - 22 daily closing prices company. You database obtain prices e.g. datastream, yahoo finance . Use prices September 2013 onwards. 2.Present a table companies, dates, prices returns ( %).

The 22 daily closing prices for IBM, Microsoft and Apple reflect the period from October 1 to October 30. In order to calculate the price return for each stock, the previous day closing price has been subtracted from the present day closing price and the result was divided by the present day value. The result has been multiplied by 100, to reflect a percentage price return. The formula below resumes this calculation:

R% = ((Rt-Rt-1)/Rt) * 100

The table below shows the closing prices for the three selected companies (IBM, Microsoft and Apple), as well as the percentage price returns for each of these companies, for the interval October 1 -- October 30.

IBM

Microsoft

Apple

Close Price

Price Return

Close Price

Price Return

Close Price

Price

(a) Before discussing the results for each stock in part and before drawing a conclusion in terms of which stock dominates the other, it is useful to make some general observations about the three types of stock. IBM, Microsoft and Apple are all considered blue chips, namely stocks with low risk, which yield a regular rate of return through time. In the case of the period in analysis here (October 1-October 30), this is reflected through the fact that the daily fluctuations are generally quite small, usually less than $3. The only stock that has a significant fluctuation in a day is IBM, whose closing price drops on October 17 with almost $12.

In terms of average returns, this translates in the fact that both Microsoft and Apple had moderate average returns in the analyzed period: 0.26% for Microsoft and 0.

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34% for Apple. IBM had a negative return (-0.18%), primarily explained with the one-day drop that has been mentioned previously (a company-related event triggered that most likely, since the other two companies gained on that day).

In terms of variance, a measure of risk, the low values for all the three stocks reflect the blue chip quality. IBM has the highest risk of the three, probably because of some of the price fluctuations (the one-day drop and a significant gain on October 29). Apple has the highest average return and the lowest variance of the three stocks that are analyzed. Given the theory discussed in class, this makes Apple the dominant investment. Since Apple dominates both Microsoft and IBM, it is thus not dominated by any of the other stock. This means that Apple is the mean-variance efficient investment.

4. Variance-covariance matrix

IBM

Microsoft

Apple

IBM

0.000362242

0.000300194

0.00021607

Microsoft

0.000300194

0.000248773

0.00017906

Apple

0.000216069

0.000179059

0.00012888

Correlations

IBM

Microsoft

Apple

IBM

1

-0.037804343

-0.13020998

Microsoft

-0.344617385

1

-0.17470316

Apple

-0.130209981

-0.174703161

1

5. (a) The companies with the highest correlation coefficient are IBM and Apple. Let's consider XIBM the weight for IBM stock and XAPPLE the weight for Apple stock. Assuming the correlation coefficient is zero, the two equations for the return and standard deviation are

Rp = -0.18* XIBM + 0.34*XAPPLE

p = (0.0192* XIBM2 + 0.0112* XAPPLE2)1/2

Combinations

Weight IBM

Weight Apple

Return (%)

Standard deviation (%)

1

1

0

-0.001789

0.019032664

2

0.8

0.2

-0.000749

0.015394489

3.....

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