Essay About Reit Brown Group Vanguard And California Reit

Beta Management Company
(a) The standard deviations can be calculated using Excels STDEV() function.
Stock Cal. REIT Brown Group Vanguard 500
St.Dev (StD) 9:23% 8:17% 4:61%
The individual stocks have almost double the variability of the Vanguard Index 500.
So the individual stocks are riskier.
California REIT seems riskier than Brown based on Standard Deviation.
(b) The variability of a portfolio with w in asset 1 and 1 фЂЂЂ w in asset 2 is
_p = hw2_2
1 + 2w(1 фЂЂЂ w)_1;2 + (1фЂЂЂw)2_2
where _1; _2 are StDs, and _1;2 is the covariance between asset 1 and 2. Using Excel
function COVAR(), we can calculate the covariance between Vanguard 500 Index and
the two stocks.
Stock Cal. REIT Brown Group
Cov(Vanguard, Stock) 0:0003 0:0024
_ Variability (StD) of the portfolio (99%Vanguard, 1% Cal. REIT)
2 = 4:57%
_ Variability (StD) of the portfolio (99%Vanguard, 1% Brown Group)
2 = 4:61%
Comparing these portfolios, we see that the Brown stock adds more variability to the
portfolio. Thus, Brown is riskier.
This answer di_ers from that in part (a) because a large part of the portfolios risk
is related to the covariance between the individual stock and Vanguard. Since the
covariance between Browns stock and Vanguard is almost 8 times that between Cal.
REIT and Vanguard, the portfolio that includes Brown is riskier.
(c) The regression results are obtained using the Excels LINEST() function. Beta can
also be calculated using formula Cov(Stock,Vanguard)/Var(Vanguard).
Stock Beta Alpha
Cal. REIT 0:1474 фЂЂЂ0:0243
Brown Group 1.1633 -0.0195
This is consistent with part (b)s results