2101 words - 9 pages

INTRODUCTION

We are required to collect stock prices of 35 public listed companies. There are 20 Malaysia, 5 United State, 5 United Kingdom, 5 Indonesia and KLCI index for the period of 2006 until 2013 based on weekly basis. Malaysia stock prices in this project based on Bursa Saham Malaysia. The stock prices of 20 Malaysia public listed company named by Prostaco, Raya International, Tiong Nam, Tong Herr, Toyo Ink, TSH, Turiya, United, Vitrox, UPA Corporation, Zecoon, Yokohama Industries, Woodlandoor, Wong Engeenering, White Horse Berhad, Whelcal Holding, Weida, Warisan TC Holding, Yinson Holding Berhad and YTL Power.

While, the stock prices of 5 United State public listed company named ...view middle of the document...

Sources of returns can include dividends, returns of capital and capital appreciation. The rate of annual return is measured against the initial amount of the investment and represent a geometric mean rather than a simple arithmetic mean. Annual return is the facto method for comparing the performance of investment with liquidity, which includes stocks, bonds, funds, commodities and some types of derivatives. Different asset classes are considered to have different strata of annual returns.

3) Standard Deviation

A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance. In finance, standard deviation is applied to the annual rate of return of an investment to measure

the investment’s volatility and is used by investors as a gauge for the amount of expected volatility. Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund id deviating from the expected normal returns.

4) Risk

A probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action. In finance, the probability that an actual return on an investment will be lower than the expected return.

5) Sharpe ratio

A ratio developed by Nobel Laureate William F. Sharpe to measure risk adjusted performance. The Sharpe ratio is calculated by subtracting the risk free rate such as that of the 10 year U.S Treasury bond from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The ex-ante Sharpe ratio formula is:

The Sharpe ratio tells us whether a portfolio’ returns are due to smart investment decisions or a result of excess risk. Although one portfolio or fund can reap higher returns than it’s peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio’s Sharpe ratio, the better its risk adjusted performance has been. A negative Sharpe ratio indicates that a risk less asset would perform better than the security being analyzed.

6) Covariance

A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns move together. A negative covariance means that assets return move inversely. One method of calculating covariance is by looking at return surprises (deviations from expected return) in each scenario. Another method is to multiply the correlation between the two variables by the standard deviation of each variable.

For example, if stock A’s return is high whenever stock B’s return is high and the same can be said for low...

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