Introduction on companies:
The portfolio comprises of stocks of five different companies namely Cisco system Inc, Face book Inc, Intel corporation, YPF Sociedad Anonima and Hyatt Hotel corporations. Cisco systems Inc is a multinational technology conglomerate of America that is based in San Jose, California. Company is engaged in manufacturing, designing and selling networking and other related products and serves varied business sizes such as government, institutions and other service providers. Facebook is an American social networking and online social media service company based in California. Platform of Facebook enable people to learn and discover about what is going on around the world that helps them to connect to people by sharing ideas, videos, photos and wide range of other activities. Intel Corporation is a multinational technology company that is headquartered in California, Silicon Valley (Intel. 2018). It is engaged in manufacturing, designing, data storage, building communication platform and networking worldwide. Operation of company is done through data center group, client computing group, programmable solutions, nonvolatile memory solutions, industrial and several other embedded applications. YPF Sociedad Anonima is an energy company of Argentina that is engaged in the exploration and production of oil and gas. Moreover, some other activities that is carried out by company includes marketing, refining, distribution and transportation of petrochemicals, petrochemicals, bio fuels and LPG along with operating as distributor of natural gas. Hyatt Hotels Corporation is a hospitality organization that operates at global level by managing, owning, franchising and developing the branded hotels, vacation ownership properties, residence and resorts. There are four segments in which company operates which comprises of Americas franchising and management leased and owned hotels, Asia franchisee and management and ASPAC management and franchising (Investors.hyatt.com 2018).
Time series plot of each stocks:
The time series for which the prices of stocks have been captured is for the first five months of latest year. Looking at the time series plot of each of the stock of different companies, it can be seen that there is considerable degree of fluctuation in the price of stocks of Cisco Systems and Hyatt Hotels Corporation. However, there is not much fluctuation in the price of stocks of Facebook, Intel and YPF Sociedad Anonima. In recent times, it can be seen that there is upward movement in the stock price of Facebook. Graph depicting time series for Intel indicates that the movement in stock price is much flatter with an upward rise in the current year. The movement in stock price of YPF in year 2018 has been in the downward direction since beginning with the price remaining high in the fourth month of the current year (Koijen et al. 2017). Moreover, price fell to its lowest level in fifth month of this year and slowly picking later on.
Analysis of market behavior for analyzed period:
The market behavior of stocks has been analyzed by studying historical market data including the volume and price for predicting future movement in stock price. Stock price of Facebook is considerably high compared to stock price of Cisco, Intel and YPF. As on given date of analysis till 25th May, 2018, it can be seen that stock price of Cisco Systems is recorded at 43.69 and the stock price of Facebook stood at 161.05. Stock price of Hyatt Hotels Corporation stood at 76.90 that is highest followed by Facebook. Stock price of YPF and Intel on other hand stood at 20.64 and 53.97. It can be inferred from the analysis of historical data and the price of stocks on given date that stocks of Facebook is trading at highest price with stocks of YPF trading at lowest price.
Risk analysis and predicted return:
Analysis of risks attributable to each stock is done by the computation of coefficient of variation. Risk on any stock is measured by computing the deviation of actual return from expected return. Coefficient of variation helps in measuring the volatility of stocks in relation to expected return on investment made in any stock. The higher the value of coefficient of variation, the higher will be the risk associated with investment on any stocks (Revelli & Viviani 2015). It can be seen from the computed value that coefficient of variation of Cisco Systems is recorded at 0.031 compared to 0.059 relating to stocks of Facebook. Coefficient of variation for stocks of Hyatt Hotel Corporations and Intel Inc is computed at 0.024 and 0.039 respectively. For stocks of YPF, the computed value of coefficient of variation stood at 0.046. From the mentioned figures, it can be inferred that the stock of Facebook has highest value of coefficient of variation and the lowest value of coefficient of variation being recorded by stocks of Hyatt Hotel Corporation. It is indicated by the figures that the stocks of Hyatt Hotel Corporation is less volatile and for per unit of return, the risk taken by investors is comparatively lower. Stocks of Facebook on other hand are much volatile followed by stocks of YPF Sociedad Anonima because of higher value of coefficient of variation (Watkiss et al. 2015). Therefore, the stocks with fewer of low volatility would be preferred by rational investors to make investment. Hence, taking into account the value of coefficient of variation, it would be feasible for investors to make investment in stocks of Hyatt Hotel Corporations and Cisco systems.
Furthermore, when looking at the predicted return by stocks of different companies, it can be seen that all the stocks are generating negative return except for the stocks of Intel Inc. The predicted return generated by the stocks of Cisco systems stood at -0.0489 followed by return of
-0.0576 generated by stocks of Hyatt Hotel Corporations. Now, looking at the predictive return generated by stocks of Facebook, Intel Inc and YPF, the value of predictive returns is recorded at -0.1387, -0.0127 and -0.0057 respectively (In.finance.yahoo.com 2018). Therefore, it is the stocks of Intel that is generating positive predicted return. Hence, investors would be more inclined towards making investment stocks of Intel Inc. In addition to the positive predicted return, investment in stocks of Intel is also preferred because of value of coefficient of variation compared to other stocks.
The objective function is set to maximize the return on investment.
Thus the objective function is:
- MAX -0.0441 x1 -0.1302 x2 - 0.0093 x3 - 0.0115 x4 - 0.0535 x5
- x1 + x2 + x3 + x4 + x5 <= 50000
- 031 x1 + 0.059 x2 + 0.039 x3 + 0.046 x4 + 0.024 x5 <= 2000
- x2 <= 20000
- x3 <= 20000
- x4 <= 20000
- x5 <= 20000
- x1 - 5000 y1 >= 0
- x2 - 5000 y2 >= 0
- x3 - 5000 y3 >= 0
- x4 - 5000 y4 >= 0
- x5 - 5000 y5 >= 0
- y1 + y2 + y3 + y4 + y5 >= 4
The objective function is given as:
MAX - 0.0441 x1 - 0.1302 x2 - 0.0093 x3 - 0.0115 x4 - 0.0535 x5
The equation is formed as the product of coefficient of predicted return with the stock investment. The predicted return is derived as where is the expected return on 25th May and is the closing return on 11th May.
Equation (i) is derived as the maximum investment that can be made i.e., $50,000.
Equation (ii) is derived as the product of coefficient of variation of the stock with the investment in the stock.
The maximum investment in a stock is $20,000. Equations (iii) to (vii) represent the maximum investment in a stock.
Equations (viii) to (xii) represent the minimum amount ($5000) that should be investment in a stock.
To hold the condition that there should be diversity in stocks equation (xiii) is written.
The objective Function is -592.00
The amount invested in Cisco = $5000
The amount to be invested in FB = $0
The amount invested in Intel = $5000
The amount invested in Ypf = $5000
The amount invested in H= $5000
The amount invested in the stocks is $20,000.
The minimum loss is $592. Thus his return would be $19,408.
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