Discuss the correlation coefficients of these five stocks and the betas of these five stocks. Are the beta estimates consistent with your expectation of cyclical stocks or defensive stocks?

2. Is the firm-specific risk (as a percentage of total risk) in your 5-security portfolio lower than that of an individual stock? What does that imply?

3. Review your stock and portfolio alphas. Please discuss which stocks are overvalued or undervalued and justify your reasoning.

Thank you for all of your help!

  

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Date Std Dev. Variance Beta Exp. Ret 1/1/20 2/1/20 3/1/20 4/1/20 5/1/20 6/1/20 7/1/20 8/1/20 9/1/20 10/1/20 11/1/20 12/1/20 1/1/21 2/1/21 3/1/21 4/1/21 5/1/21 6/1/21 7/1/21 8/1/21 9/1/21 10/1/21 11/1/21 12/1/21 1/1/22 2/1/22 3/1/22 4/1/22 5/1/22 6/1/22 7/1/22 8/1/22 9/1/22 10/1/22 11/1/22 12/1/22 1/1/23 Monthly return 2/1/2023 Predicted return by CAPM Stock/portfolio alpha Systematic risk % of total risk Firm-specific risk % of total risk LULU Return -0.091817 -0.128145 0.179003 0.342850 0.039687 0.043524 0.153813 -0.123247 -0.030604 0.159510 -0.059937 -0.055599 -0.051722 -0.015946 0.093117 -0.036210 0.129483 0.096446 0.000000 0.011320 0.151495 -0.024892 -0.138553 -0.147375 -0.041407 0.141558 -0.029023 -0.174661 -0.068605 0.139027 -0.033976 -0.068009 0.176992 0.155817 -0.157582 -0.042137 0.119229 0.014216 1.094935 0.013728 0.007560 -0.032996 0.040556 0.004549 32.00% 0.009666 68.00% HD Return -0.044980 -0.142903 0.185265 0.130328 0.008170 0.066126 0.073637 -0.025716 -0.034545 0.040119 -0.042500 0.025136 -0.046082 0.181582 0.066989 -0.014706 -0.000063 0.034561 -0.006125 0.006377 0.138214 0.077662 0.035945 -0.112075 -0.139381 -0.052243 0.009631 0.007823 -0.094071 0.104170 -0.041603 -0.037028 0.073168 0.094080 -0.019195 0.026309 0.078544 0.006169 0.770944 0.014780 -0.085233 -0.009503 -0.075730 0.002255 36.56% 0.003914 63.44% AEO Return -0.097079 -0.382764 0.000000 0.152201 0.189956 -0.082569 0.261000 0.174465 -0.074274 0.312181 0.115620 0.138754 0.132658 0.137743 0.187761 0.024877 0.059272 -0.081535 -0.110048 -0.154653 -0.079845 0.098754 -0.022016 -0.092444 -0.076654 -0.203036 -0.091616 -0.198544 -0.076796 0.076923 -0.050056 -0.135879 0.167523 0.392606 -0.117573 0.156160 0.161269 0.026008 1.474180 0.018085 -0.109665 -0.060496 -0.049169 0.008246 31.71% 0.017762 68.29% HPE Return -0.081838 -0.240813 0.047327 -0.034791 0.002060 0.025001 -0.020263 -0.031024 -0.066224 0.277777 0.073370 0.051798 0.179903 0.081044 0.026103 -0.003745 -0.086466 0.002163 0.066207 -0.078267 0.036555 -0.020478 0.098955 0.043548 -0.025107 0.049623 -0.070987 0.012330 -0.150000 0.082757 -0.044944 -0.119118 0.201948 0.175894 -0.048868 0.018119 0.099159 0.009833 1.087832 0.011932 -0.032238 -0.032481 0.000243 0.004490 45.67% 0.005342 54.33% HMC Return 0.002344 -0.124708 0.080373 0.083160 -0.018810 -0.044427 0.050513 -0.073495 0.003043 0.173582 0.019120 -0.056342 0.044940 0.091435 0.000228 0.048290 0.029431 -0.002486 -0.057321 0.013549 -0.023437 -0.074713 0.039459 0.038664 0.034179 -0.075262 -0.057760 -0.051429 -0.030120 0.065010 0.031104 -0.185897 0.071514 0.073620 -0.066939 0.085739 0.069613 0.004846 0.717485 0.003782 0.046334 -0.005627 0.051960 S&P 500 Ret 40.31% 0.002893 59.69% -0.084110 -0.125119 0.126844 0.045282 0.018388 0.055101 0.070065 -0.039228 -0.027666 0.107546 0.037121 -0.011137 0.016052 0.033907 0.030255 0.042984 0.002237 0.028058 0.015560 0.031212 -0.036925 0.058900 -0.021811 0.062822 -0.088109 0.035773 -0.087957 0.000053 -0.083920 0.091116 -0.042440 -0.093396 0.079863 0.053753 -0.058971 0.061753 0.061599 0.003794 1.000000 0.008440 -0.026112 -0.026112 0.000000 0.001953 0.003794 100.00% 0.000000 0.00% Portfolio Ret -0.062674 -0.203867 0.098394 0.134749 0.044213 0.001531 0.103740 -0.015803 -0.040521 0.192634 0.021134 0.020750 0.051939 0.095172 0.074840 0.003701 0.026331 0.009830 -0.021457 -0.040335 0.044596 0.011267 0.002758 -0.053936 -0.049674 -0.027872 -0.047951 -0.080896 -0.083919 0.093577 -0.027895 -0.109186 0.138229 0.178403 -0.082031 0.048838 0.082706 0.006840 1.029075 0.012461 -0.034649 -0.028221 -0.006428 0.004018 58.75% 0.002822 41.25% Risk-free rate 0.0158 0.0037 0.0011 0.0010 0.0013 0.0011 0.0008 0.0009 0.0009 0.0009 0.0008 0.0008 0.0004 0.0002 0.0002 0.0001 0.0003 0.0005 0.0004 0.0005 0.0006 0.0007 0.0004 0.0005 0.0004 0.0018 0.0031 0.0058 0.0106 0.0185 0.0228 0.0261 0.0332 0.0387 0.0390 0.0452 0.012886 0.000166 -0.009461 0.007753 0.046400 Date Std Dev. Variance Beta Exp. Ret 1/1/20 2/1/20 3/1/20 4/1/20 5/1/20 6/1/20 7/1/20 8/1/20 9/1/20 10/1/20 11/1/20 12/1/20 1/1/21 2/1/21 3/1/21 4/1/21 5/1/21 6/1/21 7/1/21 8/1/21 9/1/21 10/1/21 11/1/21 12/1/21 1/1/22 2/1/22 3/1/22 4/1/22 5/1/22 6/1/22 7/1/22 8/1/22 9/1/22 10/1/22 11/1/22 12/1/22 1/1/23 Monthly return 2/1/2023 Predicted return by CAPM Stock/portfolio alpha Systematic risk % of total risk Firm-specific risk % of total risk LULU Return -0.091817 -0.128145 0.179003 0.342850 0.039687 0.043524 0.153813 -0.123247 -0.030604 0.159510 -0.059937 -0.055599 -0.051722 -0.015946 0.093117 -0.036210 0.129483 0.096446 0.000000 0.011320 0.151495 -0.024892 -0.138553 -0.147375 -0.041407 0.141558 -0.029023 -0.174661 -0.068605 0.139027 -0.033976 -0.068009 0.176992 0.155817 -0.157582 -0.042137 0.119229 0.014216 1.094935 0.013728 0.007560 -0.032996 0.040556 0.004549 32.00% 0.009666 68.00% HD Return -0.044980 -0.142903 0.185265 0.130328 0.008170 0.066126 0.073637 -0.025716 -0.034545 0.040119 -0.042500 0.025136 -0.046082 0.181582 0.066989 -0.014706 -0.000063 0.034561 -0.006125 0.006377 0.138214 0.077662 0.035945 -0.112075 -0.139381 -0.052243 0.009631 0.007823 -0.094071 0.104170 -0.041603 -0.037028 0.073168 0.094080 -0.019195 0.026309 0.078544 0.006169 0.770944 0.014780 -0.085233 -0.009503 -0.075730 0.002255 36.56% 0.003914 63.44% AEO Return -0.097079 -0.382764 0.000000 0.152201 0.189956 -0.082569 0.261000 0.174465 -0.074274 0.312181 0.115620 0.138754 0.132658 0.137743 0.187761 0.024877 0.059272 -0.081535 -0.110048 -0.154653 -0.079845 0.098754 -0.022016 -0.092444 -0.076654 -0.203036 -0.091616 -0.198544 -0.076796 0.076923 -0.050056 -0.135879 0.167523 0.392606 -0.117573 0.156160 0.161269 0.026008 1.474180 0.018085 -0.109665 -0.060496 -0.049169 0.008246 31.71% 0.017762 68.29% HPE Return -0.081838 -0.240813 0.047327 -0.034791 0.002060 0.025001 -0.020263 -0.031024 -0.066224 0.277777 0.073370 0.051798 0.179903 0.081044 0.026103 -0.003745 -0.086466 0.002163 0.066207 -0.078267 0.036555 -0.020478 0.098955 0.043548 -0.025107 0.049623 -0.070987 0.012330 -0.150000 0.082757 -0.044944 -0.119118 0.201948 0.175894 -0.048868 0.018119 0.099159 0.009833 1.087832 0.011932 -0.032238 -0.032481 0.000243 0.004490 45.67% 0.005342 54.33% HMC Return 0.002344 -0.124708 0.080373 0.083160 -0.018810 -0.044427 0.050513 -0.073495 0.003043 0.173582 0.019120 -0.056342 0.044940 0.091435 0.000228 0.048290 0.029431 -0.002486 -0.057321 0.013549 -0.023437 -0.074713 0.039459 0.038664 0.034179 -0.075262 -0.057760 -0.051429 -0.030120 0.065010 0.031104 -0.185897 0.071514 0.073620 -0.066939 0.085739 0.069613 0.004846 0.717485 0.003782 0.046334 -0.005627 0.051960 S&P 500 Ret 40.31% 0.002893 59.69% -0.084110 -0.125119 0.126844 0.045282 0.018388 0.055101 0.070065 -0.039228 -0.027666 0.107546 0.037121 -0.011137 0.016052 0.033907 0.030255 0.042984 0.002237 0.028058 0.015560 0.031212 -0.036925 0.058900 -0.021811 0.062822 -0.088109 0.035773 -0.087957 0.000053 -0.083920 0.091116 -0.042440 -0.093396 0.079863 0.053753 -0.058971 0.061753 0.061599 0.003794 1.000000 0.008440 -0.026112 -0.026112 0.000000 0.001953 0.003794 100.00% 0.000000 0.00% Portfolio Ret -0.062674 -0.203867 0.098394 0.134749 0.044213 0.001531 0.103740 -0.015803 -0.040521 0.192634 0.021134 0.020750 0.051939 0.095172 0.074840 0.003701 0.026331 0.009830 -0.021457 -0.040335 0.044596 0.011267 0.002758 -0.053936 -0.049674 -0.027872 -0.047951 -0.080896 -0.083919 0.093577 -0.027895 -0.109186 0.138229 0.178403 -0.082031 0.048838 0.082706 0.006840 1.029075 0.012461 -0.034649 -0.028221 -0.006428 0.004018 58.75% 0.002822 41.25% Risk-free rate 0.0158 0.0037 0.0011 0.0010 0.0013 0.0011 0.0008 0.0009 0.0009 0.0009 0.0008 0.0008 0.0004 0.0002 0.0002 0.0001 0.0003 0.0005 0.0004 0.0005 0.0006 0.0007 0.0004 0.0005 0.0004 0.0018 0.0031 0.0058 0.0106 0.0185 0.0228 0.0261 0.0332 0.0387 0.0390 0.0452 0.012886 0.000166 -0.009461 0.007753 0.046400

Answer rating: 100% (QA)

To discuss the correlation coefficients and betas of the five stocks lets first define what these terms mean Correlation coefficient The correlation coefficient measures the strength and direction of ... View the full answer