Getting Started With The Project On Yahoo Finance

Getting Started With The Projectgo To Yahoo Finance Httpsfinance

Cleaned Assignment Instructions:

Download stock data from Yahoo Finance for selected companies, ensuring consistent date ranges. For each stock, retain only the 'Adjusted Close' column labeled appropriately. Calculate daily returns, then determine average returns and standard deviations, optionally annualizing these metrics. Generate graphs and cross-correlation matrices. Compute the portfolio return using specified or equal weights. Break down and compare the returns of individual securities and the portfolio during the entire period, pre-COVID-19, and during COVID-19 periods. Calculate individual betas using the provided method, then determine portfolio beta as a weighted average of individual betas.

Paper For Above instruction

The process of financial analysis, particularly for portfolio management and risk assessment, begins with acquiring consistent and reliable data. For this purpose, Yahoo Finance serves as a primary source, offering comprehensive historical stock prices. Selecting stocks across different sectors enhances diversification and reduces sector-specific risks. It is advisable to exclude securities previously discussed or analyzed exhaustively, such as Amazon and Walmart, to ensure the analysis covers a broader market spectrum. Once stocks are chosen, data should be downloaded covering a specific period, for instance from November 1, 2018, to November 1, 2020, ensuring that all data sets share identical date ranges.

After obtaining the raw data in CSV format, the critical step involves cleaning the dataset by retaining only the 'Adjusted Close' column, which accounts for corporate actions like dividends and stock splits, thus providing a consistent basis for return calculations. Save the cleaned data as Excel files to facilitate further analysis. The next step involves computing daily returns, usually expressed as percentage changes in adjusted closing prices from one day to the next. The formula for daily return is typically (Today’s adjusted close / Yesterday’s adjusted close) – 1, or equivalently, the natural log of the ratio, if logarithmic returns are preferred.

Calculating average daily returns and standard deviations across the data set provides insight into the typical performance and volatility of each security. These can be optionally annualized—multiplying daily returns by 250 (the approximate number of trading days in a year) to find the annual yield, or using the formula [(1 + daily return)^250] – 1; for volatility, multiplying the daily standard deviation by the square root of 250 yields the annualized risk measure. While optional, annualizing helps compare different assets on a yearly basis, which is a common practice in financial analysis.

Visual representation of data enhances understanding of relationships and risk structures. Plotting the individual stock returns, the overall portfolio return, and their respective cross-correlation matrix reveals correlations and potential diversification benefits. The portfolio return is a weighted sum of individual returns: W1R1 + W2R2 + ... + Wn*Rn, where W represents the weight assigned to each asset, often equally distributed (25% each) if no specific preferences exist.

To evaluate systemic risk, the beta of each security against the market (represented by S&P 500) is calculated. Beta measures an asset’s sensitivity to market movements. Using Excel’s slope function, regress individual stock returns against market returns to derive beta values. The portfolio beta becomes the weighted average of the individual betas, reflecting the overall systematic risk exposure of the portfolio.

Further analysis involves segmenting the data into different timeframes to compare performance during pre-COVID-19 and COVID-19 periods. Such comparison may reveal shifts in volatility, correlation, and risk, aiding in understanding market dynamics during crises. Dissecting the relationships and risks during these periods can inform better portfolio adjustments and risk management strategies.

Assessing the comprehensive risk and return profile of a portfolio provides valuable insights into investment performance and stability. Incorporating statistical measures, visual tools, and regression-based beta calculations ensures a thorough understanding of the assets' behavior relative to the market and each other. This systematic approach aligns with best practices in financial data analysis, enhancing decision-making in portfolio management.

References

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