Investment Analysis Introduction The ultimate attraction from equity comes in shape of the excess returns in which equity investors are keen to take some risks to earn healthy returns. However, the question arises as to which stock should be included in the portfolio and which stock should be avoided mainly depends upon the risk appetite of the investor as well as the behavior of a particular stock…
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Ltd (GNC), MACQ GROUP FPO (MQG), Perpetual Limited (PPT), Cochlear Limited (COH), Woodside Petroleum Limited (WPL) and Rio Tinto Ltd. (RIO). These stocks are picked from the index on random basis in order to avoid any biasness. The following part analyzes the excess stock returns of every company on individual basis. Risk & Return Analysis As far as the risk and returns for 6 stocks as well as the market is concerned, it can be affirmed that the market return remained negative in the past two 26 months. The market provided -0.6137 return with the risk of 3.79 which is relatively low. The best return is provided by GNC which is 0.9069 with the risk measure of 7.0546. The lowest performing stock was MQG such that it provided a massive negative return of -2.7928 given the risk level of 7.3839. WPL was found to be the least risky stock with the figure of 6.7976 with the return of -0.7820. COH turned out to be the riskiest stock with the figure of 12.3989 with the negative return of -0.3344. ...
Gain Corp Ltd Regression Statistics Multiple R 0.4970 R Square 0.2470 Adjusted R Square 0.1394 Standard Error 6.5444 Observations 25 Coefficients Standard Error t Stat P-value Intercept 1.2427 1.3432 0.9251 0.3654 EMR 0.7704 0.3732 2.0640 0.0516 SMB -0.8326 0.7121 -1.1693 0.2554 HML 0.9103 0.9036 1.0074 0.3252 If the overall model fit of GNC is taken into consideration, it can be noticed that R-square is quite low i.e. 24.7% which explains that all three factors only explain 24.7% behavior of GNC. The intercept is not significant due to higher p-value which is greater than the 0.05 level of significance. However, if 3FMs are closely looked at only EMR has contributed in predicting the excess return behavior of GNC as its p-value is quite closer to 0.05. The other two factors including SMB and HML are also insignificant due to higher p-values. In other words, the excess stock return behavior of GNC is independent of the SMB and HML but there is slight dependency can be found with respect to EMR. 2. MACQ GROUP FPO Regression Statistics Multiple R 0.7809 R Square 0.6099 Adjusted R Square 0.5542 Standard Error 4.9304 Observations 25 Coefficients Standard Error t Stat P-value Intercept -1.5311 1.0120 -1.5130 0.1452 EMR 1.4996 0.2812 5.3329 0.0000 SMB 1.2077 0.5364 2.2513 0.0352 HML 1.7840 0.6808 2.6206 0.0160 The model of MQG is very strong such that the value of R-square which is 0.6099 reflects that the excess stock returns of MQG are explained by 61% with 3FMs. The intercept is turned out to be insignificant due to higher p-value. However, all the three factors contributed in explaining the behavior of MQG such that all have p-values less than the cut off level of 0.05. The beta of MQG with respect to market is near to 1.5,
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