Sunbeam: Risk Aversion and Mean Variance Approach Essay

Submitted By mainevent33
Words: 1149
Pages: 5

Introduction
This report is intended to describe the relationship between risk and return of two different stocks and portfolio that consists of two stocks with different approaches.
The two common stocks of the two different industry groups, Telstra and Woolworths were chosen to illustrate the above matter. The month end closing prices/ index and market information were adopted from past issues of DatAnalysis Premium Australia and Reserve Bank of Australia website; while the company information were adopted from their own company website and other supporting sources.

Organisational Analysis
The three stocks that have chosen are from two different sectors, Telstra Corporation Limited from the diversified telecommunication services and Woolworths Limited from retailing industries A. Telstra (TLS)
Communication stocks - more B. Woolworths (WOW)
Retail industry - more
Mean and variance approach | WOW | TLS | Average expected return | 0.01 | 0.002319178 | Standard Deviation | 0.047591663 | 0.051203916 | Variance | 0.002264966 | 0.002621841 |
Use monthly basis, with 10 years data. Monthly, compare with interest rate from bank. 10 years data (include the financial crisis, long term basis) woolworth | telstra | total | return of portfolio | standard deviation | 100.00% | 0.00% | 100.00% | 0.010017894 | 0.047591663 | 97.50% | 2.50% | 100.00% | 0.009825426 | 0.046515444 | 95.00% | 5.00% | 100.00% | 0.009632958 | 0.045475905 | 92.50% | 7.50% | 100.00% | 0.00944049 | 0.04447562 | 90.00% | 10.00% | 100.00% | 0.009248022 | 0.043517296 | 87.50% | 12.50% | 100.00% | 0.009055554 | 0.042603763 | 85.00% | 15.00% | 100.00% | 0.008863086 | 0.041737963 | 82.50% | 17.50% | 100.00% | 0.008670618 | 0.040922926 | 80.00% | 20.00% | 100.00% | 0.008478151 | 0.040161743 | 77.50% | 22.50% | 100.00% | 0.008285683 | 0.03945753 | 75.00% | 25.00% | 100.00% | 0.008093215 | 0.038813388 | 72.50% | 27.50% | 100.00% | 0.007900747 | 0.038232355 | 70.00% | 30.00% | 100.00% | 0.007708279 | 0.037717345 | 67.50% | 32.50% | 100.00% | 0.007515811 | 0.037271097 | 65.00% | 35.00% | 100.00% | 0.007323343 | 0.036896106 | 62.50% | 37.50% | 100.00% | 0.007130875 | 0.036594562 | 60.00% | 40.00% | 100.00% | 0.006938407 | 0.036368292 | 57.50% | 42.50% | 100.00% | 0.00674594 | 0.036218706 | 55.00% | 45.00% | 100.00% | 0.006553472 | 0.036146758 | 52.50% | 47.50% | 100.00% | 0.006361004 | 0.03615291 | 50.00% | 50.00% | 100.00% | 0.006168536 | 0.036237123 | 47.50% | 52.50% | 100.00% | 0.005976068 | 0.036398855 | 45.00% | 55.00% | 100.00% | 0.0057836 | 0.036637079 | 42.50% | 57.50% | 100.00% | 0.005591132 | 0.036950316 | 40.00% | 60.00% | 100.00% | 0.005398664 | 0.037336678 | 37.50% | 62.50% | 100.00% | 0.005206196 | 0.037793923 | 35.00% | 65.00% | 100.00% | 0.005013729 | 0.038319512 | 32.50% | 67.50% | 100.00% | 0.004821261 | 0.038910677 | 30.00% | 70.00% | 100.00% | 0.004628793 | 0.039564478 | 27.50% | 72.50% | 100.00% | 0.004436325 | 0.040277866 | 25.00% | 75.00% | 100.00% | 0.004243857 | 0.041047733 | 22.50% | 77.50% | 100.00% | 0.004051389 | 0.041870965 | 20.00% | 80.00% | 100.00% | 0.003858921 | 0.042744477 | 17.50% | 82.50% | 100.00% | 0.003666453 | 0.043665253 | 15.00% | 85.00% | 100.00% | 0.003473986 | 0.044630368 | 12.50% | 87.50% | 100.00% | 0.003281518 | 0.045637008 | 10.00% | 90.00% | 100.00% | 0.00308905 | 0.046682488 | 7.50% | 92.50% | 100.00% | 0.002896582 | 0.047764256 | 5.00% | 95.00% | 100.00% | 0.002704114 | 0.048879905 | 2.50% | 97.50% | 100.00% | 0.002511646 | 0.050027166 | 0.00% | 100.00% | 100.00% | 0.002319178 | 0.051203916 |

Covariance | Woolworths | Telstra | Woolworths | 0.002283841 | 0.000184 | Telstra | 0.000184378 | 0.002644 |

Beta approach – use CAPM approach
The data is the same with mean variance approach. It is easier to compare. The group uses 10 years zero coupon Australia government bond for risk free (compare with long…