Gsbs6130 Corporate Finance For The Assessment Answers
Question:
Answer:
Standard deviation is the basic concept of analyze the market volatility. It takes the concern of normal distribution, dispersion statistics and market probability to analyze the risk of the stock of a company. Following is the example of the standard deviation of IRESS limited which depict that how easy it is for a comapny to analyze the risk factor of a company’s stock (Elton et al, 2009).
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Summary Output |
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Regression Statistics |
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Multiple R |
0.156443 |
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R Square |
0.024475 |
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Adjusted R Square |
0.006738 |
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Standard Error |
0.065826 |
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Observations |
57 |
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ANOVA |
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df |
SS |
MS |
F |
Significance F |
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Regression |
1 |
0.005979 |
0.005979 |
1.379869 |
0.245184 |
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Residual |
55 |
0.238321 |
0.004333 |
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Total |
56 |
0.244301 |
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Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
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Intercept |
0.010005 |
0.008877 |
1.127028 |
0.264624 |
-0.00779 |
0.027795 |
-0.00779 |
0.027795 |
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X Variable 1 |
0.20137 |
0.171426 |
1.174678 |
0.245184 |
-0.14217 |
0.544915 |
-0.14217 |
0.544915 |
According to the above calculations, it has been analyzed that the risk of the company is 20.13%.
According to the equation, it becomes easy for a comapny to analyze the total risk of the comapny.
If one asset from the portfolio is risk free asset than the total there are more chances for the asset to offer less risk as well as the associated return would also be less. The above equation depict that the weight and the standard deviation of the asset decide about the investment return. If the standard deviation of a comapny would be lower than the total risk of the comapny would also be lower whereas the return would also be affected with it (Rachev et al, 2008).
References:
Elton, Edwin J., Martin J. Gruber, Stephen J. Brown, and William N. Goetzmann. Modern portfolio theory and investment analysis. John Wiley & Sons, 2009.
Rachev, Svetlozar, Sergio Ortobelli, Stoyan Stoyanov, Frank J. Fabozzi, and Almira Biglova. "Desirable properties of an ideal risk measure in portfolio theory." International Journal of Theoretical and Applied Finance 11, no. 01 (2008): 19-54.
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