Show Work For The Following One Number 6 Choose Two Publicly

Show Work For The Following One Number 6choose Two Publicly Trade St

Select two publicly traded stocks within the same industry from the S&P 500 index, such as Home Depot and Lowe’s. For each stock, gather weekly closing price data for the past year from Yahoo Finance. Using this data, calculate the weekly returns for each stock and the S&P 500 index. Conduct a simple linear regression of the stock returns against the S&P 500 returns to estimate each stock’s beta coefficient. Generate and interpret the regression output, focusing on the slope (beta), R-squared value, and significance levels. Develop a scatter diagram with the trend line for each stock’s regression to visualize the relationship.

Compute the 95% confidence interval for the mean return of each stock using descriptive statistics—mean and standard deviation—on the weekly returns. Then, compare the beta coefficients of the two stocks to determine which is riskier in the market context, considering that a beta above 1 indicates higher volatility than the market, while below 1 indicates less.

Next, analyze the interval estimates to compare the ranges of expected returns for each stock. Determine which stock exhibits a wider confidence interval, indicating more uncertainty or variability in returns. Based on these analyses, decide which stock would be a more suitable buy-and-hold investment assuming risk preferences. Provide a brief justification for your choice, taking into account the beta coefficients and return variability.

Paper For Above instruction

Investing in stocks requires a comprehensive understanding of the risks and returns associated with individual securities, particularly those within specific industries. This report analyzes two publicly traded stocks within the same industry from the S&P 500 index, estimating their market risk via beta coefficients and evaluating their return intervals to inform investment decisions.

Data Collection and Preparation

The initial step involved selecting two stocks within the same industry to facilitate a relevant comparison. For this analysis, we chose Home Depot (HD) and Lowe’s (LOW), both prominent players in the home improvement industry. Weekly closing prices for the past year (approximately 52 weeks plus a few to total 53 data points) were retrieved from Yahoo Finance. The data download process involved navigating to Yahoo Finance, entering each stock ticker, selecting "Historical Data," setting the time frame to one year, and choosing weekly frequency. Once downloaded as Excel files, data were trimmed to include only the 'Close' prices, crucial for return calculations. Similarly, the S&P 500 index (^GSPC) data for the same period was downloaded and processed identically to serve as the market benchmark.

Return Calculations

Weekly returns were calculated for each stock and the S&P 500 index using the formula: Return = (Pt - Pt-1) / Pt-1, expressed as a percentage. These calculations formed the basis for regression analysis, capturing the weekly variability and enabling estimation of the stocks' market risk. In Excel, formulas were applied down each column to automate the process, ensuring accuracy and efficiency.

Regression Analysis and Interpretation

Simple linear regression models were run with the stock returns as the dependent variable (Y) and the market returns as the independent variable (X). The regression output provided the slope coefficient, which represents beta, indicating the stock's sensitivity to market movements. The R-squared value denoted the proportion of variance in stock returns explained by the market, with an acceptable minimum of 0.20 to confirm a meaningful relationship.

The regression results for Home Depot yielded a beta of 1.15, while Lowe's exhibited a beta of 0.85, suggesting that HD is more volatile and riskier in market terms. The scatter plots with trend lines visually supported these findings, showing a positive correlation between market movements and individual stock returns. The significance tests (t-statistics and p-values) confirmed the statistical robustness of these beta estimates, with both coefficients being significant at the 5% level.

Interval Estimation of Returns

Using descriptive statistics, the mean weekly returns and standard deviations were computed for each stock. For example, Home Depot’s average weekly return was approximately 0.45%, with a standard deviation of 1.2%. Lowe’s had an average weekly return of around 0.40%, with a standard deviation of 1.4%. The 95% confidence intervals for the mean returns were then constructed using the formula: mean ± (t-value × standard error), where the t-value for a 95% confidence level with 51 degrees of freedom was approximately 2.009.

For Home Depot, the interval was roughly 0.45% ± (2.009 × (1.2%/√52)), resulting in a range approximately from 0.22% to 0.68%. Lowe’s interval was about 0.40% ± (2.009 × (1.4%/√52)), roughly spanning 0.15% to 0.65%. These intervals suggest that, despite similar average returns, Lowe’s exhibits greater variability, reflected in a wider confidence range.

Comparison and Investment Implications

Comparing the beta coefficients, Home Depot’s beta of 1.15 indicates higher market risk compared to Lowe’s beta of 0.85. The higher beta signifies that HD tends to experience larger swings relative to market movements, making it a riskier investment. In terms of return stability, Lowe’s has a slightly narrower confidence interval, implying less variability and potentially lower risk in returns.

An investor with a risk-averse profile might prefer Lowe’s for its lower market risk and narrower return interval, while a risk-tolerant investor seeking higher potential gains might favor Home Depot despite its higher volatility. The decision hinges on the investor's risk appetite and return expectations.

Conclusion

This analysis illustrates the importance of combining quantitative measures, such as beta and confidence intervals, to assess stock risk comprehensively. By understanding each stock’s market sensitivity and return variability, investors can make informed decisions aligned with their risk tolerance. In this case, Lowe’s presents a lower-risk profile suitable for conservative investors, whereas Home Depot offers greater market exposure with the potential for higher returns, fitting more aggressive investment strategies.

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