Analysis of Alex Sharpe’s portfolio
Alex Sharpe’s Portfolio Case Questions
- Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest?
- Suppose Sharpe’s position had been 99 per cent of equity funds invested in the S&P 500 and either one per cent in Reynolds or one per cent in Hasbro. Estimate the resulting portfolio position. How does each stock affect the variability of the equity investment? How does this relate to your answer in question 1 above?
- Perform a regression of each stock’s monthly returns on the Index returns to compute a “beta” for each stock. How does this relate to your answer in question 2 above?
- How might the expected return of each stock relate to its riskiness?
- In what stock(s) (if any) should Sharpe invest?