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# I have a project due Sunday statistics class. I was

### Customer Question

I have a project due Sunday for my statistics class. I was hoping I might be able to get some help with it here.
Submitted: 1 year ago.
Category: Multiple Problems
Customer: replied 1 year ago.
This is the project.
Project 4: Finding your 401(k) betaFor this project, you are going to evaluate the systematic risk of an investment portfolio. It can be an imaginary portfolio that you would like to put together to park your retirement savings, or your real 401(k) portfolio.
To simplify the project, we are not going to include bonds, ETFs, mutual funds, etc. Or in other words, we are going to investigate a portfolio composed of only stocks. For example, your ideal portfolio can comprise the following stocks: IBM (5%), APPL (5%), GOOG (10%), DIS (10%), C (5%), WMT (20%), ALM (5%), GM (10%), JNJ (10%), GE (5%), KFT (5%), MCD (10%). Note the weights in the parenthesis (percentage of total funding) have to add up to 100%. Your portfolio may include more stocks than this example because it normally takes more than 30 stocks (Statman, 1987) for a portfolio to be qualified as a well diversified portfolio.
Beta measures the systematic risk (non-diversifiable risk) of a stock. Mysterious as it may sound, it can be easily found out by regressing the stock’s monthly excess return (return in excess of risk free rate) on market monthly excess return according to the following model:
R_it-R_ft=α_i+β_i (R_mt-R_ft )+e_it
Equivalently Equivalently
the dependent variable Y the independently variable Xwhere,
R_it is the return of stock i on month t;
R_ft is the risk free return on month t, normally a 3-month treasury bill serves a good proxy;
R_mt is the market return on month t, normally S&P 500 return serves a good proxy;
β_i is the beta for stock i;
α_i is the intercept for stock i;
e_it is the error term.
To find the beta for stock i, you need to obtain the data of R_it-R_ft as dependent variable Y and R_mt-R_ft as the independent variable X. beta is simply the regression coefficient.
After you find beta for each individual stock i, the portfolio beta is simply β_p=∑_(i=1)^n▒w_i β_i where w_i is the weight of stock i in the portfolio.
Note you need to run regression analysis for each stock. If your portfolio contains 30 stocks, you will need to run 30 regressions and find 30 beta’s respectively. Comment on how you find beta is related to the stock’s industry (Finance? Manufacturing? Retail? Utility?) or relate to the company’s size (market capitalization). For example, it is generally accepted that utility stocks have low beta’s while technology stocks have high beta’s.
In your report, I am looking for:
1. What stocks are in your portfolio? What is the weight (percentage of total investment) for each stock?
2. What is the historical period you choose to access the data? (Example: Jan 1981- Dec 2000)
3. Report beta for each stock.
4. Report beta for the portfolio.
5. Any observations on beta’s are encouraged.
Expert:  F. Naz replied 1 year ago.
What should be the length of report and the data of 30 stocks will be provided by you or I will have to find out at my own. Moreover, the beta of each stock is already given on www.finance.yahoo.com. Can the beta at yahoo.com may be used instead of finding the beta through your above given formula, thanks.
Customer: replied 1 year ago.
It does not have a specified length requirement. The only information I have is what I provided to you already. The professor is very vague.
Customer: replied 1 year ago.
yahoo finance can be used
Expert:  F. Naz replied 1 year ago.
There are thirty stocks to be used and the period should be 20 years 1981-2000 or shorter period may be used as it makes the data collection very lengthy, please confirm, thanks.
Customer: replied 1 year ago.
I do not think the period really matters. In the example video that she provided that I am watching now, she is using 2001-2013
Expert:  F. Naz replied 1 year ago.
But still 13 years to be used.
Customer: replied 1 year ago.
Yes, but from what I am understanding you can choose whichever historical period you would like
Expert:  F. Naz replied 1 year ago.