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
Lease Finance Leasing is a contract between one party called lessor as owner of asset and other called lessee whereas the lessee is provided the right to utilize the asset as

Petroleo Brasileiro (PBR) has just issued 1M one year bonds. Each bond hasa face value of1,000 Reais. Owners of the bonds are entitled to receive $R 1000 back at the end of the yea

Question: A non-zero coupon bond carries a coupon rate of 8 percent and has 9 years until maturity. It sells at a yield to maturity of 6 percent. The par value of the bond is

You own a two-bond portfolio. Each has a par value of $1,000. Bond A matures in five years, has a coupon rate of 8 percent, and has an annual yield to maturity of 9.20 percent. Bon

Significant Features of Partnership 1) The capital is contributed by the partners and no appeal is made to the public. 2) Like the sole proprietorship, a partnership has a l

Proforma Balance Sheet This refers to the projected balance sheet at the finish of forecasting period.  The items in the proforma balance that vary with sales would be determi

Requirements for Raising Loan Requirements for Raising Loan are as follow: a) Subsidiaries of the company and History. b) Qualifications, ages, and names of the company's dire

term paper about financial markets in pakistan

For the set of activities shown in the table below, draw the total expenses vs. time curve using the following data: The labor rates are as follows: Labor # 1 (L1) rate = 30

Agency Relationship between Government and the Shareholders Shareholders and via extension, the company they own operate within the environment requiring the charter or licens