Dr. Shelly's Portfolio Case - Tagged
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School
University of Houston, Downtown *
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Course
6368
Subject
Medicine
Date
Dec 6, 2023
Type
Pages
3
Uploaded by CaptainWorldDugong33
Case: Dr. Shelly’s Portfolio
Dr. Ashley Shelly completed Family Medicine training at the University of South Alabama Family Medicine Residency, where she served as chief resident during her last year. She enjoyed working in Alabama, so as she neared the end of the residency requirement, she accepted a position as a Family Medicine Doctor in Mobile, Alabama. Her new salary would be nearly six times more than the internship salary. Her hard work had finally paid off. She knew it was time to put together a financial plan which would focus on saving for a home purchase, while tackling her huge $300,000 debt in student loans. She remembered from an undergraduate finance class, that it was a good strategy to invest in a solid company that was currently experiencing lower than expected stock prices in the hopes that the would turn things around. She decided that Ford Motor Company may be a great investment choice since its recent electric vehicle (EV) initiatives would be supported by President Biden’s policy in which he set a target of 50% of EV sale shares in the U.S. by 2030.
She also learned that it wasn’t good to place all your eggs in one basket, so combining shares of Ford with other stocks or even with a well-diversified Standard & Poor index fund might be worth considering. She would analyze portfolios formed by combining Ford shares with Dorman Products (DORM), Cooper Standard (CPS), and the SPDR S&P 500 ETF (SPY) in separate portfolios. CPS and DORM compete in the auto industry with Ford. Ford (F), founded in 1903, is globally headquartered in Michigan. It is an auto maker with three customer-centered business segments that focus on: gas-powered & hybrid vehicles, electric vehicles (EV), and commercial vehicles & services. Additionally, the company offers financial services and is pursuing a non-automotive mobility tech solution through its Ford Next
business. The auto industry is experiencing high demand and supply-chain constraints, which has affected Ford’s ability to offer some features in its new vehicles. Despite the challenges, Ford’s strength in innovation has made it America’s second largest EV maker behind Tesla.
Dorman Products (DORM) founded in 1918, is globally headquartered in Pennsylvania. It is an after-market auto parts maker that provides replacement parts and replacement upgrades. They provide tens of thousands of products for different makes and models, covering parts and electronics. Their strategy is innovation, new product development, and acquiring brands. Strong macro fundamentals in the automotive after-market are expected to remain robust due to an increasing average vehicle mileage and average vehicle age, as well as a continued shortage of new vehicles.
Cooper Standard (CPS), founded in 1936, is globally headquartered in Michigan. It makes and sells sealing and fluid handling systems and components used in equipment, machinery and automotive. Its serves diverse transportation and industrial markets. The company leverages its engineering and manufacturing capabilities to win new business and capitalize on positive trends associated with electric vehicles that constitutes over 40% of future annualized sales from new business awards received in the second quarter of 2023.
SPDR S&P 500 ETF Trust (SPY) is the first exchange traded fund (ETF) that was launched in 1993 by State Street Global Advisors in Massachusetts. It is the world’s largest ETF that aims to track the S&P 500 index performance. SPY is also the most widely traded ETF globally. It was designed to trade at approximately 1/10
th
of the S&P 500 index. If the index is at $4,500, SPY price would roughly be $450. It does an excellent job in tracking the S&P 500. However, it is not an exact tracker, but differences are very small.
Dr. Shelly’s goal is to analyze the various risk/return results when different portfolios are created and learn more about beta and CAPM.
Spreadsheet Requirements
1.
Create portfolios in the gray area referencing the appropriate weights and stock return cells in your formulas.
a.
Portfolio 1: .5 F + .5 Dorm
b.
Portfolio 2: .5 F + .5 CPS
c.
Portfolio 3: .99 SPY + .01 F
d.
Portfolio 4: .98 SPY + .01 F + .01 DORM
e.
Portfolio 5: .98 SPY + .01 F + .01 CPS
2.
Calculate expected returns for F, SPY, DORM, and CPS. Calculate expected returns for Portfolios 1 – 5.
3.
Calculate standard deviation for F, SPY, DORM, and CPS. Calculate expected returns for Portfolios 1 – 5.
4.
Calculate required rate of return for F, SPY, DORM, and CPS using CAPM. Calculate expected returns for Portfolios 1 – 5 using CAPM.
5.
Calculate Sharpe’s Ratio for F, SPY, DORM, and CPS using CAPM. Calculate expected returns for Portfolios 1 – 5 using CAPM.
6.
Calculate the Correlation Coefficient between F and Dorm.
7.
Calculate the Correlation Coefficient between F and CPS.
8.
Calculate the Correlation Coefficient between F and SPY.
9.
Calculate the Correlation Coefficient between Dorm and SPY.
10. Calculate the Correlation Coefficient between CPS and SPY.
Questions
1.
What is the difference between beta and standard deviation? 2.
Were there any instances where Stock A’s beta was higher than Stock B’s beta, but Stock B had a higher standard deviation than stock A? If so, list the occurrences and explain what makes this situation is possible.
3.
How are accept/reject decisions made in investments when comparing the expected rate of returns to the required rate of returns?
4.
Based strictly on the analysis explained in part “3”, which stocks, ETF, or portfolios would be considered desirable investments? Which investments would be considered undesirable?
5.
How does Sharpe’s Ratio contribute to the analysis of portfolio performance? Should an investment decision be based solely on Sharpe’s Ratio?
6.
If you were advising Dr. Shelly, which investments would you make and why?
7.
Based on current government policies and other economic decisions, in your opinion, what is the outlook for Ford? Explain your opinion and include the list of policies and economic decisions that formed your opinion.
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