Learn How to Analyze & Invest In Stocks using Mainstream Analytic Tools

What is an index fund? Why is it a safer investment than picking individual equities (stocks)?

In groups of 2, you will be using skills that we have learned in chapters 3 and 12 to perform a few mainstream analytic tools that are used to measure the performance and predict future performance of certain equities (stocks) in the S&P 500. I know that sounds daunting – but you will be surprised just how basic some of these calculations are and that they are the foundation of the decision making that drives the movement of millions of dollars in the stock market daily.

 Items that you will need:

?Microsoft Excel
?Access to a financial data website – yahoo finance works quite well.


Process:

1.Find a partner
2.Record your group and its members in the Google Sheet document provided in the announcement link. Make sure to take each member name off the master list so remaining students know who they can potentially reach out to.
3.Open a thread in the Discussion Board section of Blackboard and answer the following questions:
a.What is an index fund? Why is it a safer investment than picking individual equities (stocks)?
b.What is the S&P 500? And how is it calculated?
c.When referring to analyzing stock performance, what do the terms alpha and beta mean?
d.Please look through all the companies listed in the S&P 500 and choose 4 random stocks. Do NOT just choose the 4 largest market cap stocks (AMZN, APPL, etc.)
4.Go to your financial data source and collect the closing prices for each trading day (no holidays or weekends) for the month of November. Do this for each of your individual stocks and the S&P index. Input this data into an excel spreadsheet.

After you have completed the following steps, we are going to consider this the completion of Part 1 (gathering data). Part 2 will consist of analyzing the data. The four variables that we are going to calculate are: standard deviation, alpha, beta, and rate of return. Between the four of these variables you will have a clear picture of how these stocks performed and how you will plan your investing decisions moving forward.

5.Once you have all of your data collected, watch the provided video for the process and the format of how you are going to calculate and organize your data on the excel spreadsheet.
6.Provide a written analysis that is explaining each of the calculations you’ve performed, compare them to each other and grade their performance 1-4. In your explanation please go over each performance variable.
7.Which stocks of the four were the most correlated to the index itself? Which was the least correlated?

The last step for this project is constructing a portfolio. Everyone has heard the cliché investing mantra: “diversify your portfolio” – usually this is referring to different asset classes (equities, commercial bonds, government bonds, real estate, etc.) but for this project we are focused on one asset class [equities]. As the savvy investors that all of you are, this will not stop us from taking a page out of diversifications playbook.

After all of your analysis, we are going to set our portfolio for the following month [December]. You are going to take an imaginary $100,000 (won’t be imaginary for too long – am I right!?) an allocated it towards the four stocks that you have just analyzed. For simplicity sakes, we are going to assume that the four stocks that you have chosen are going to maintain their performance for the month of December -- your job is to figure out what the dollar return on your portfolio would be.


What your final work should look like:

?A completed excel spreadsheet – similar to what the video entails.
?The written portion of the project on a Word Document – drive or traditional.

This may seem like an analytic project -which it is- but make sure to be verbose through your explanation. Talk about your groups risk appetite and how that was associated with how your allocated your portfolio.