This assignment will require you to analyze time series of monthly returns. Start by retrieving
MONTHLY data for the period of December 31, 2008 – July 31, 2013 from Yahoo for
S&P 500 Index (ticker: ^GSPC)
Merck & Co. Inc (ticker: MRK)
Nike (ticker: NKE)
Instructions for downloading the data from Yahoo!:
To obtain the monthly data, click on “Historical Prices” on the left panel. Select Date Range. Make sure
Monthly is selected and then click on “Get Prices”. Scroll down and click on “Download to Spreadsheet”.
For those using MAC: MAC does not automatically save the file as an excel file. So, after you click on
“Download to Spreadsheet”, save the file as a .csv file. Then, open Excel (select ALL FILES) and open
this file in excel. Before you start doing anything, save this file as a .xls file (.csv file does not retain the formulae and cell references after closing the file).
Instructions for sorting the data by DATE:
Re-sort the data so that the most previous date is at the bottom of your spreadsheet (i.e. highlight DATE columns and click on SORT, make sure you “Expand the selection” is selected, then click on SORT and sort by Date and order by ‘Oldest to Newest’).
Use the ‘Adjusted Close’ column to obtain returns for each period. Remember that the Adjusted Close
column has already adjusted the prices for dividends and stock splits so you do not have to adjust for it again. Just use the adjusted close column to obtain the returns.
1 1 t t t PP R
Solve for the following:
A. Calculate the average returns, variance and standard deviation for the returns of each series.
Furthermore, calculate the covariance and the correlation coefficient between each of the return series
(there should be a total of three correlations and three covariances). Comment on the statistics.
B. If you were to form a portfolio that had 50% of the S&P 500 Index and 50% of Merck, what would be the average returns and the standard deviation of that portfolio? (Ignore the fact that both Merck may already be included in the S&P 500)
C. If you were to add Nike to your portfolio so that you now had 33% S&P 500, 33% Merck, and 34%
Nike, what would be the new average returns and standard deviation? (Ignore the fact that both Nike and Merck may already be included in the S&P 500) Is Nike a good addition to your portfolio? Why do you think so?
D. Construct a scatter diagram that shows MRK’s returns on the Y-axis and S&P 500 Index returns on the X-axis. Determine MRK’s beta.
E. Construct a scatter diagram that shows NKE’s returns on the Y-axis and S&P 50