Posted: June 12th, 2021
Select five public companies that are the closest competitors (the companies are H&m, GAP, Abercrombie & Fitch, Zara, and The Buckle) of the firm you analyzed in Homework 1, and for each of the six companies (initial firm + 5 competitors) download the last five years of monthly stock prices and dividends ending on March 31, 2021 (March 31, 2016 – March 31, 2021). Do the same thing for the S&P 500 index (symbol SPY on https://finance.yahoo.com/). These should be the end-of-month prices. Using these data, do the calculations required below and answer the following questions:
Calculations: Using end-of-month stock prices for the last 5 years (ending on March 31, 2021), compute:
c) the expected annual return, annual standard deviation, and Sharpe ratio of the portfolio created with the six selected stocks (initial firm: AMERICAN EAGLE OUTFITTERS + 5 competitors).
(a) Based on the Sharpe ratio,
i. how did the original company perform relative to the five competitors?
ii. which stocks were the best and worst performers, on average, over the last five years? Use the 3-month Treasury bill rate as the risk-free rate. The 3-month Treasury bill rate can be obtained from the link below.
(b) Which of the six stocks have outperformed and which have underperformed the market (S&P 500) over this five-year period based on the raw return and risk-adjusted return (Sharpe ratio)?
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