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Financial Analysis of Five Companies
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May 31, 2022
Financial Analysis of Five Companies
Economist Harry Markowitz introduced the Theory of Modern Portfolio (MPT) in 1952.
This theory was concerned with properties of the return from the alternative vehicles of
investment. Portfolio Portfolios allude to a group of financial instruments like stocks, cash, and
bonds. Investors’ factors for the portfolio include risk tolerance, time, and personal investment
objectives or motivation. The financial managers control these portfolios to achieve the
appropriate allocation of the risk-return portfolio. The two types of risk in the MPT include
diversified and undiversified risks.
The diversified risks are the unsystematic risks reduced through appropriate
diversification, and they concentrate on an individual stock. The basic procedures approached in
MPT include valuation of security, which involves describing the universe assets based on
expected return and the expected risks. Another procedure is the decision of assets allocation,
determining how the assets should be distributed among the investment classes like stocks and
bonds. The third procedure is optimizing the portfolio by reconciling the risk and the return when
selecting securities, like determining the securities portfolio providing the best-expected return
for the specific level of the expected risk. The last procedure is diversified and the undiversified
Boeing Company
Monster Beverage Corporation
JP Morgan Chase
Old Dominion Freight Line
Mean, Variance, and Standard Deviation of every security’s annual return rate.
Mean gives the statistical measure for the central value for the data over a specific period.
It is shown in the excel function as average.
Variance entails the measure of the volatility measuring the quantity in which the stock
deviates from the mean. When the variance is high, more stock fluctuates. When the variance is
high, more risks are linked to the stock. In the excel function, it uses the formula VARP.
Standard Deviation entails the square root of the variance to measure the variance
between the set of values. The low standard deviation value denotes less variation, and data in
the dataset are close to the mean. The excel function is SQRT (Variance).
Calculation of correlation coefficient between these five companies
All five companies had a positive correlation coefficient value, which signals that they all
have a strong positive correlation.
Percentage of initial investment
The percentage of five securities weight for the initial investment I allocated was as
Old Dominion Freight Line 20%
JP Morgan Chase 15%
Monster Beverage Corporation 20%
Pfizer 35%
The Boeing Company 10%
In more than the two securities, the covariance is calculated using matrix algebra. The
matrix manipulations are done with a few functions like “MMULT (…) and TRANSPOSE (…).
It involved using the variance-covariance formula to calculate portfolio return and the portfolio
variance. After calculating the portfolio variance, the standard Deviation or the portfolio’s
volatility is calculated through the square root of the variance. The excel sheet formula shows the
portfolio return and the portfolio variance. It also shows the portfolio standard deviation and
portfolio CV.
Combination of weights that minimizes CV of portfolio
In this section, the Markowitz portfolio model was used to determine the minimum
variance portfolio for the specifically targeted return rate using the Solver function in excel.
After Solver has been launched, the target cell is set to minimize. It is the cell for storing the
portfolio standard deviation. The portfolio standard deviation is minimized by changing the
portfolio weights. Thus, the portfolio weight for each company is unique.

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