Investment Analysis for Australian and New Zealand Financial Institutions - Example

Investment Analysis s Introduction Finance is a broad field which has its recognition and importance in almost every walk of life. When it comes to finance, there are number of concepts that needed to be revolved around it and among them, the name of Investment and risk are some of them. Investment is one of the major sciences in which the role of finance is extremely important. It is basically a science which is used to utilize the funds of an organization or an investor at a place from where the likelihood of earning would be on a higher scale in particular. The main perspective of this assignment is solely depends upon the literature and concept of investment management. Stock price is one of the major things from which effectiveness could have been earned and analyzed in analysis. There are four different sections that needed to be complete in this particular analysis and all of the sections are required to complete accordingly. The companies which have been chosen for the same analysis are Commonwealth Bank of Australia (CBA), Insurance Australia Group Limited (IAG) and Australia and New Zealand Banking Group Limited (ANZ). All of these companies listed on the Australian Stock Exchange and have high market capitalization. The assignment has been distributed into different sections, like Introduction, Analytical Framework and Conclusion. Analytical Framework Part-1 It is required to compute different things for all of the companies mentioned above. It is required to have the share price data for 28 days Discrete and Continuous Rate of Return Analysis   CBA IAG ANZ Observations Share Price Rate of Return Share Price Rate of Return Share Price Rate of Return 1 76.58   2.15   27.56   2 77.68 1.436 2.2 2.326 27.6 0.145 3 76.58 -1.416 2.3 4.545 27.8 0.725 4 77.88 1.698 2.4 4.348 27.9 0.360 5 78.52 0.822 2.5 4.167 28.1 0.717 6 78.9 0.484 2.55 2.000 27.9 -0.712 7 79.1 0.253 2.4 -5.882 27.8 -0.358 8 79.2 0.126 2.56 6.667 28 0.719 9 79 -0.253 2.4 -6.250 28.1 0.357 10 78.9 -0.127 2.41 0.417 28.2 0.356 11 79.3 0.507 2.45 1.660 28.3 0.355 12 79.4 0.126 2.9 18.367 28.1 -0.707 13 79.5 0.126 3.12 7.586 28.4 1.068 14 79.6 0.126 3.2 2.564 28.9 1.761 15 79.2 -0.503 3.6 12.500 29.2 1.038 16 79.3 0.126 3.48 -3.333 29.8 2.055 17 79.5 0.252 3.7 6.322 30.14 1.141 18 79.6 0.126 3.8 2.703 30.2 0.199 19 79.8 0.251 3.9 2.632 30.5 0.993 20 79.5 -0.376 4.1 5.128 30.8 0.984 21 79.6 0.126 4.3 4.878 31.25 1.461 22 79.4 -0.251 4.35 1.163 31.5 0.800 23 79.5 0.126 4.5 3.448 31.7 0.635 24 79.8 0.377 4.8 6.667 31.9 0.631 25 79.9 0.125 4.9 2.083 32.1 0.627 26 80.1 0.250 5.4 10.204 32.5 1.246 27 80.05 -0.062 5.6 3.704 33.85 4.154 28 80.19 0.175 5.78 3.214 33.03 -2.422 Arithmetic Mean   0.172   3.845   0.679 Geometric Mean   0.939   1.049   0.986 Discrete Rate Return   4.652   103.826   18.326 Continuous Rate of Return   5.184   16.490   10.034 Formulas Arithmetic Mean = Geometric Mean = Discrete Rate of Return = Ln (Rate) Continuous Rate of Return = (1 + i/m) ^ m/n From the above mentioned analysis, it is found that the arithmetic mean of IAG is highest showing a net figure of 3.84%, while ANZ also has a higher amount of mean return which is 0.67% (Share Analysis 2014). There is a considerable different found among the discrete and continuous rate of return in all of chosen stocks, however the rate of return of IAG is abnormal. Variance of Return   CBA IAG ANZ Observations Share Price Rate of Return Share Price Rate of Return Share Price Rate of Return 1 76.58   2.15   27.56   2 77.68 1.436 2.2 2.326 27.6 0.145 3 76.58 -1.416 2.3 4.545 27.8 0.725 4 77.88 1.698 2.4 4.348 27.9 0.360 5 78.52 0.822 2.5 4.167 28.1 0.717 6 78.9 0.484 2.55 2.000 27.9 -0.712 7 79.1 0.253 2.4 -5.882 27.8 -0.358 8 79.2 0.126 2.56 6.667 28 0.719 9 79 -0.253 2.4 -6.250 28.1 0.357 10 78.9 -0.127 2.41 0.417 28.2 0.356 11 79.3 0.507 2.45 1.660 28.3 0.355 12 79.4 0.126 2.9 18.367 28.1 -0.707 13 79.5 0.126 3.12 7.586 28.4 1.068 14 79.6 0.126 3.2 2.564 28.9 1.761 15 79.2 -0.503 3.6 12.500 29.2 1.038 16 79.3 0.126 3.48 -3.333 29.8 2.055 17 79.5 0.252 3.7 6.322 30.14 1.141 18 79.6 0.126 3.8 2.703 30.2 0.199 19 79.8 0.251 3.9 2.632 30.5 0.993 20 79.5 -0.376 4.1 5.128 30.8 0.984 21 79.6 0.126 4.3 4.878 31.25 1.461 22 79.4 -0.251 4.35 1.163 31.5 0.800 23 79.5 0.126 4.5 3.448 31.7 0.635 24 79.8 0.377 4.8 6.667 31.9 0.631 25 79.9 0.125 4.9 2.083 32.1 0.627 26 80.1 0.250 5.4 10.204 32.5 1.246 27 80.05 -0.062 5.6 3.704 33.85 4.154 28 80.19 0.175 5.78 3.214 33.03 -2.422 Standard Deviation   0.569   5.006   1.114 Variance   0.32405   25.0559   1.2409 Co-Variance   CBA-IAG -0.0475 Co-Variance   CBA-ANZ -0.17407 Co-Variance   IAG-ANZ -0.0073 Formulas Standard Deviation = Variance = Square of Standard Deviation Co-Variance = The standard deviation and variance of IAG is the highest as compared to CBA and ANZ. The Co-variance among the CBA and IAG is -0.047, while it is also negative for CBA-ANZ and IAG and ANZ in particular. Stock and Australian Market Index   CBA IAG ANZ Australian Index Mean 0.172 3.845 0.679 0.076 Standard Deviation 0.569 5.006 1.114 0.113 Variance 0.324 25.060 1.241 0.013 The mean return of IAG is the highest as compared to CBA, ANZ and even Australian Index as well, however the riskiness associated with this particular stock is also the highest as compared to other stocks and Australian Index as well. The current political and economic situation of Australia is more than perfect which is essential. Part-2 Portfolio Variance   CBA IAG ANZ Discrete Return Weekly 3.404 18.170 1.596 Discrete Return Weekly 0.003 36.844 4.227 Discrete Return Weekly 0.254 19.492 7.633 Discrete Return Weekly 0.991 29.320 4.870 Discrete Return Average 1.163 25.957 4.581 Standard Deviation 1.344 7.620 2.147 Variance 1.805 58.070 4.609 Proportion % 0.45 0.2 0.35 Variance 0.81 11.61 1.61 Portfolio Variance 14.04 Portfolio Return   CBA IAG ANZ Discrete Return Weekly 3.404 18.170 1.596 Discrete Return Weekly 0.003 36.844 4.227 Discrete Return Weekly 0.254 19.492 7.633 Discrete Return Weekly 0.991 29.320 4.870 Discrete Return Average 1.163 25.957 4.581 Proportion % 0.45 0.2 0.35 Return 0.52 5.19 1.60 Portfolio Return 7.32 The return of the portfolio is 7.32%, which is comparatively higher than that of the return on any individual stock mentioned above, which is good sign for an investor. It means that making a portfolio certainly worth for the company in particular and the investor has to make a perfect portfolio in order to gain competitive advantage in particular. The proportion has been applied on the basis of riskiness. 45% of the total investment has been applied to CBA, while 35% of the investment related o ANZ and remaining with IAG because it has a high amount of riskiness involved with it. If all of the investment would be invested in a single stock or even in the index as well, then it will not be effective for the investment purpose because finding this much of the return is not at all possible in particular. Part-3 It is required to have weekly numbers on the yield in particular. The rate of Australian bank has been applied on the same analysis. Reserve Bank of Australia (RBA) would have been analyzed accordingly and effectively and same 28 days to return has been found in particular. The amount to be invested is 100,000 $ The rate of Treasury bill is mentioned below Observations Rate Amount 1 4.74 4,740 2 4.74 4,740 3 4.74 4,740 4 4.74 4,740 5 4.74 4,740 6 4.74 4,740 7 4.74 4,740 8 4.74 4,740 9 4.74 4,740 10 4.74 4,740 11 4.74 4,740 12 4.74 4,740 13 4.74 4,740 14 4.74 4,740 15 4.74 4,740 16 4.74 4,740 17 4.74 4,740 18 4.74 4,740 19 4.74 4,740 20 4.74 4,740 21 4.74 4,740 22 4.74 4,740 23 4.74 4,740 24 4.74 4,740 25 4.74 4,740 26 4.74 4,740 27 4.74 4,740 28 4.74 4,740 Security Characteristic Line   CBA IAG ANZ Discrete Return Average 1.163 25.957 4.581 Risk Free Rate 4.74 4.74 4.74 Excess/Deficit Return -3.577 21.217 -0.159 Beta 0.62 0.91 0.85 From this particular analysis, it is found that the discrete return of IAG is in positive term, it means that the return of IAG is in excess as compared to the market return of the stock. It is negative for both CBA and ANZ as well, which could be found from the denoted black line in the above mentioned diagram. Total Risk (Variance)   CBA IAG ANZ Total Risk 0.32405 25.0559 1.2409 Portfolio Risk 14.04 Beta 0.62 0.91 0.85 Systematic 0.200909158 22.80083 1.054725301 Unsystematic 0.12314 2.25503 0.18613 Result From the above mentioned analysis, it is found that the systematic risk (diversifiable) risk of CBA is the lowest while for IAG is the highest and it can be decreased accordingly with the help of effective management and diversification. From the above mentioned analysis of the total return and standard deviation, it is found that making of the portfolio would be more worthwhile in this particular consequences and it would be effective for an investor to initiate the same. Part-4 Financial planning and financial analysis are some of the major aspects on which the entire capability of an organization depends upon. When it comes to organizations, then the name of net productivity and efficacy are some of the major things that stride under its capability and effectiveness. Increasing the shareholder’s net with the help of effective and timely decisions is an important aspect from the viewpoint of an organization and organizations always required to have effective economic decision on the basis of different information. The field of finance is extremely broad in which there are number of things stride upon with considerations. There are certain aspects which specifically count under the ambit of finance for the economic expansion and strategic variability. Among number of concepts which are essential for an organization as far as increasing the financial capability is concerned, the name of merger is one of them, which has its own importance and significance. Investment sciences are some of the major aspects from the viewpoint of an investor. This particular analysis which has been conducted in this particular paper is perfect for an investor to organize and taking effective and timely decisions. This particular analysis really worth for an investor as it gives an insight knowledge of market to the investor accordingly and effectively. The analysis has mean and riskiness as well which is important to analyze for an investor. The main limitation of this analysis is that the market moves of financial market is unpredictable and it depends more on fundamental news instead of technical analysis. Conclusion Management is known as the synergy of four things and elements which are planning, organizing, leading and controlling. All of these elements are essential regardless with the fact that where it is applied as if it is applied on the investment management, then it would be quite essential and perfect at the same time. Investment management is an important subject which has been one of the important fields in the field of financial management. There are certain aspects that deem essential in the investment management industry and among them; statistical tools like mean and standard deviation are some of them. Investment is a science which is used to apply in such a manner than it will give economic benefits to the investor. The main perspective of this assignment is solely depends upon the literature and concept of investment management. Stock price is one of the major things from which effectiveness could have been earned and analyzed in analysis. There are four different sections that needed to be complete in this particular analysis and all of the sections are required to complete accordingly. The companies which have been chosen for the same analysis are Commonwealth Bank of Australia (CBA), Insurance Australia Group Limited (IAG) and Australia and New Zealand Banking Group Limited (ANZ). From this entire analysis, it is found that making a portfolio always worth for an investor. References Mullins, J. (2012). Finance Management: A Strategic Decision-Making Approach. London: Oxford. Parry, M. E. (2005). Strategic Finance Management: A Means-End Approach. California: McGraw Hill. Quelch, J. A. (2001). Cases in strategic Finance management: business strategies. Sydney: Oxford Roberts, M. L. (1999). Direct Finance Management. New York: McGraw Hill. WIERENGA, B. A. (2000). Marketing Management Support Systems: Principles, Tools. New York : American Share Analysis (2012), [Online], retrieved from http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=CBA#chart Accessed on 2014-May-21st Share Analysis (2014), [Online], retrieved from http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=CBA#chart Accessed on 2014-May-21st Read More