Smsi and s&p, Finance Basics

The financial data is of little value in its raw form. However, the same may be analyzed and be put in the form more meaningful to the recipients. This is normally done by using various statistical tools including various means, mode, variance, standard deviation, trend analysis etc.

Below is the synopsis of an analysis of the Market Indices: SMSI and S&P.

Mean:

Mean represents the average. In the data under consideration, mean represents weekly average of return on investment. If expressed in percentage, return if invested in SMSI is negative 0.24 and that in S&P is positive 0.43.

This indicates that investment in S&P is beneficial as against investment in SMSI.

Standard Deviation:

Standard deviation of SMSI is 2.39% which indicates that return on investment can deviate from its average by 2.39%.

Likewise, S&P can deviate from its average by 1.94%.

Thus it is evident that SMIC fluctuates more than its own average than S&P. This indicates that SMSI is comparatively more risky.

Co-relation:

Co-relation in this case studies the behavior how each of the investment opportunity would react to any event vis - a vis each other. The same is measured in terms of co-relation coefficient. This gives the opportunity to the investor to diversify the investment and thus mitigate the risk.

Diversification is most effective when the correlation between the investments is -1 and it is least effective when the correlation is +1. As a result, if you want to reduce the risk of your portfolio as much as possible, you need to look for pairs of investments that have a correlation close to -1. A positive correlation means that two markets will move in tandem with each other. An up-move in one market will occur with an up-move in another market.

In our case correlation is 0.62 which is positive correlation indicating same direction for both markets. Thus investment in both markets will not help in reducing overall risk of portfolio.

Thus considering mean, standard deviation and correlation coefficient of both the markets it is advisable to invest in S&P market since it has positive rate of return with lower standard deviation. Further positive correlation coefficient does not suggest that diversification will result in reduction of risk.

Holding period return:

Holding period return is the return earned by the virtue of holding an asset over a given period. The return is equal to the income and other gains earned from the asset, divided by the original cost of the asset.

Holding period return of SMSI is -3.12 which represents the loss on investment. Investment is reduced by 3.12% over the period. Where as in the case of S&P Holding period return is 0.62, meaning that investments are increased by 0.62% over the period.

Even though the adjusted Holding period return for SMSI is reduced due to dollar appreciation, still it continues to be negative, resulting in the reduction in investment.

Therefore after studying Holding period return and adjusted Holding period return it is clear that investment in SMSI is not advisable as it results in deterioration of capital. Whereas, the investment is advisable since it gives positive Holding period return. But again here it should be noted that 0 .62% of Holding period return for period of 10 weeks means 3.224% (52 weeks) of annual growth which is matter of consideration seeing the risk return ratio.

Posted Date: 3/14/2013 3:18:02 AM | Location : United States







Related Discussions:- Smsi and s&p, Assignment Help, Ask Question on Smsi and s&p, Get Answer, Expert's Help, Smsi and s&p Discussions

Write discussion on Smsi and s&p
Your posts are moderated
Related Questions
Question: Company XYZ currently operates a General Insurance company and would like to start selling life insurance products. The intended market is composed of both financial

Role of Venture Capital in Economic Development The categories of venture that capitalists might invest will include: a) Business start-ups - Whenever a business has been

Determine how much of a total loan payment applies towards principal and how much applies towards interest for a home mortgage of $177,219 with a fixed APR of 7.5% of 20 years

What are the financial fluctuations? Financial Fluctuations: a. Financial market fluctuations can be a basis of macroeconomic instability. b. Are markets irrational? c

Given the following Present Value Plot for Projects A and B, which are mutually exclusive projects, answer the following questions: (i) What is the DCFROR for Project A? fo

Define the term - Finding a Broker Selection of a broker depends largely on the kind of services rendered by a specific broker as well as upon the type of transaction that a

Creditors Trade - Measuring Business Performance Creditors Trade These are interested in the company's capability to meet their short-term obligations as and whenever the

Example of Payback Period Method Suppose a project costs Sh.80,000 and will produce the following cash inflows as:                                  Cash inflows      Accumu

1 st bank offers you a car loan at an annual interest rate of 10% compounded monthly. What effective annual interest rate is the bank charging you?  Solution - Calculate

Blue Chips and Going Short or Long on Share - Stock Market Blue Chips Are first class securities of firms that have sound share capital and are internationally