HOW TO CALCULATE RISK AND RETURN

| May 19, 2015

Download the relevant stock prices for two companies from the Internet and perform risk and return calculation for the selected companies. Since the concept risk and return tradeoff is as much an art as it is a science, students must combine the selected stocks in a portfolio and then calculate the portfolio’s risk and return.

The purpose of this case study is to provide students with the opportunity to:

  1. retrieve real time financial data via the Web;
  2. Calculate the risk and return of selected stocks;
  3. Construct a portfolio
  4. Calculate the portfolio’s risk and return.
  5. Practice technology, both in calculating the returns and risks (through excel processing) and in presentation   (through giving some chart in order to explain the variance, the tendency of two stocks to move together…)

 

Follow the path shown below to retrieve the risk and return for the selected company via DSM.

  • Go to Qatar stock exchange website: qe.com.qa
  • From the menu, click on market statistics then Trading reports
  • Choose the 2014 and 2013 daily trading reports and hit submit, and then download the closing (you need the data for 2 years: 2013-2014)

Technical Information:

Each student will perform the risk and return calculation based upon the following concepts:

  • Compute daily returns for the two stocks and the portfolio. The weights to invest in each stock can be chosen by the student.
  • Asset and portfolio’s expected return and variance using historical data.
  • The correlation and the covariance in returns between the two stocks

Finally based on the investors’ attitude toward the risk-return tradeoff, the student will justify which asset is preferred Student must submit an excel file.

 

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