REPORT ON PORTFOLIO FORMATION ON FIVE

STOCKS OF NYSE
Course Name: Bank Investment Analysis
Course Code: EB-613
Section: A

SUBMITTED TO
Dr. Abdullah Al Mahmud
Associate Professor
Department of Banking & Insurance
University of Dhaka.

SUBMITTED BY:
Name ID Company name
Warda Islam 51738013 NVIDIA Corporation
Mahfuza Aziz Ananta 51839010 Microsoft Corporation
Ivee Sharmeen Pinky 51839064 Twitter
Sabrina Islam Rimi 51941071 Caterpillar Inc.
Md. Saiful Islam 51737059 HP Inc.

DATE OF SUBMISSION: 18-04- 2019

UNIVERSITY OF DHAKA

1
 LETTER OF TRANSMITTAL

April 04, 2019

Abdullah Al Mahmud
Associate Professor
Department of Banking & Insurance
University of Dhaka.

Subject: Submission of report on “Portfolio Formation on Five Stocks of NYSE.”

Dear Sir,

This is a great pleasure for me to submit the report work. We present our gathering in the report on
Portfolio formation on five stocks of NYSE as indicated by your profitable rule to satisfy the course
prerequisite of Bank Investment Analysis. In this report, we showed the fundamental analysis, technical
analysis, stock profile and efficient frontier, Capital allocation line using five stocks of NYSE.

We express our heartiest appreciation to you for giving us this chance to apply our learning from this
course into this analytical report.

Sincerely yours,

Warda Islam 51738013

Mahfuza Aziz Ananta 51839010
Ivee Sharmeen pinky 51839064
Sabrina Islam Rimi 51941071
Md. Saiful Islam 51737059
 EXECUTIVE SUMMARY

This report is readied in view of five stocks right now exchanged in New York Stock Exchange
(NYSE). These stocks are NVIDIA, TWITTER, HPQ, MICROSOFT and CATERPILLER. These
stocks are browsed five unique ventures with a specific end goal to accomplish diversification. The
report is divided into two noteworthy fragments. In the Security Analysis and Selection portion we gave
the purposes behind picking the stocks and strengthen them with fundamental and technical analysis.
We have additionally demonstrated the liquidity ratio, leverage ratio, ROE, EPS, P/E Ratio, Yearend
stock prices for last 5 years, return distribution, regression analysis and beta of individual stocks with
respect to S&P 500. The other fragment demonstrates the regression analysis of five stocks and
graphically speaks to the relationship amongst risk and return combination by drawing an efficient
frontier line& Capital allocation line based on the portfolio formation.
 TABLE OF CONTENTS

Contents
CHAPTER 01: INTRODUCTION................................................................................................6
INTRODUCTION........................................................................................................................6
CHAPTER2.......................................................................................................................................9
CHAPTER 02: RATIO ANALYSIS..........................................................................................10
ACID RATIO.............................................................................................................................11
LEVERAGE RATIO..................................................................................................................12
DEBT TO ASSET RATIO.........................................................................................................12
LONG TERM DEBT TO ASSET RATIO.................................................................................13
SHORT TERM DEBT TO ASSET RATIO...............................................................................14
DEBT TO EQUITY RATIO......................................................................................................15
RETURN ONEQUITY...............................................................................................................16
EARNINGS PERSHARE...........................................................................................................17
PRICE EARNINGS RATIO.......................................................................................................18
CHAPTER3 REGRESSION ANALYSIS..............................................................................20
CHAPTER4 FINDINGS AND CONCLUSION.....................................................................27
REFERENCES...........................................................................................................................27
APPENDIX........................................................................................................................29
 CHAPTER
1INTRODUCTION
 CHAPTER 01: INTRODUCTION

INTRODUCTION

NVIDIA:
NVIDIA Corporation operates as a visual computing company worldwide. It
operates in two segments, GPU and Tegra Processor. The GPU segment
offers processors, which include GeForce for PC gaming and mainstream
PCs; GeForce NOW for cloud-based game-streaming service; Quadro for
design professionals working in computer-aided design, video editing, special effects, and other creative
applications. It is incorporated in Delaware and based in Santa Clara, California. It designs graphics
processing units for the gaming and professional markets, as well as system on a chip unit for the
mobile computing and automotive market.Their Revenue is 9.714 billion USD (2017). Currently they
have 13,277 full time employees. NVidia belongs to technology sector & semiconductors industry.
Their EPS is $6.63, PE ratio 26.62 & market Capitalization is 106.96B. Their Major Competitors Apple,
Hewlett-Packard Company, IBM, Amazon, Microsoft. Google, Intel etc.

HP Inc.:
HP Inc. is an American multinational information technology
company headquartered in Palo Alto, California, United States. It
develops personal computers (PCs), printers and related supplies, as
well as 3D printing solutions. It was formed on November 1, 2015,
renamed from the personal computer and printer divisions of the
original Hewlett-Packard Company, with its enterprise products and services businesses
becoming Hewlett Packard Enterprise. The split was structured so that Hewlett-Packard changed its
name to HP Inc. and spun off Hewlett Packard Enterprise as a new publicly traded company. HP Inc.
retains Hewlett-Packard's pre-2015 stock price history and its former stock ticker symbol, HPQ, while
Hewlett Packard Enterprise trades under its own symbol; HPE.HP is listed on the New York Stock
Exchange and is a constituent of the S&P 500 Index. It is the world's largest personal computer
vendor by unit sales, having regained its position in 2017 since it was overtaken by Lenovo in 2013. HP
ranked No. 58 in the 2018 Fortune 500 list of the largest United States corporations by total revenue.
Their market Cap is 30.992B, PE ratio is $7.76 & EPS $2.61.
 Twitter:
Twitter is an American online news and social networking service on which
users post and interact with messages known as "tweets". Tweets were
originally restricted to 140 characters, but on November 7, 2017, this limit
was doubled for all languages except Chinese, Japanese, and Korean.
Registered users can post, like, and rewet tweets, but unregistered users can
only read them. Users access Twitter through its website interface, through Short Message Service
(SMS) or its mobile-device application software ("app").Twitter, Inc. is based in San Francisco,
California, and has more than 25 offices around the world. Their Market Cap is 26.279B, PE ratio
is
22.03 & EPS is 1.56.Currently has 3,900 (2018) employees & 321M active users. Their revenue is
US$3.04 billion (2018).

Microsoft Corporation:

Microsoft Corporation (MS) is an American multinational technology

company with headquarters in Redmond, Washington. It develops,
manufactures, licenses, supports and sells computer software, consumer
electronics, personal computers, and related services. Its best known
software products are the Microsoft Windows line of operating systems,
the Microsoft Office suite, and the Internet Explorer and Edge web browsers. Its flagship hardware
products are the Xbox video game consoles and the Microsoft Surface lineup of touch screen personal
computers. As of 2016, it is the world's largest software maker by revenue, and one of the companies.
The word "Microsoft" is a portmanteau of "microcomputer" and "software”. Microsoft is ranked No. 30
in the 2018 Fortune 500 rankings of the largest United States corporations by total revenue of
US$110.36 billion. Its market cap is 927.954B, PE ratio is 28.06, and EPS is 4.31.

Caterpillar Inc.

Caterpillar Inc. is an American Fortune 100 corporation which designs,

develops, engineers, manufactures, markets and
sells machinery, engines, financial products and insurance to customers
via a worldwide dealer network. It is the world's largest
constructionequipment manufacturer. In 2018, Caterpillar was ranked #65 on the Fortune 500 list and
#238 on the Global Fortune 500 list. Caterpillar stock is a component of the Dow Jones Industrial
Average. The company also licenses and markets a line of clothing and work wear boots under its Cat /
Caterpillar name. Caterpillar machinery is recognizable by its trademark "Caterpillar Yellow" livery and
the "CAT" logo. Their Revenue is $45.5 billion. Number of employees are 98,400, Market cap is
$82.23B, PE Ratio is 13.93, EPS is 10.26.

CONTRIBUTION OF COMPANIES IN MARKET CAPITALIZATION AND

GDP

Contribution of
Contribution
Market Total Total Market Market chosen
of chosen
Name Capitalization GDP(in Capitalization Capitalization Companies in
companies in
( in billions) billions) ( in billions) as % of GDP market
GDP
capitalization

NVIDIA 106.96 9.11% 0.53%

HPQ 30.99 2.64% 0.15%

Twitter 26.28 20220.0 1174.42 5.81% 2.24% 0.13%

Microsoft 927.95 79.01% 4.59%

Caterpillar 82.23 7.00% 0.41%

The table represents the contribution of the chosen companies in GDP of USA From the given
Information, it is clear that the Microsoft has the highest market capitalization and contributes the most
in GDP than the other companies mentioned.
 CHAPTER2
RATIO ANALYSIS
 CHAPTER 02: RATIO ANALYSIS

LIQUIDITY RATIO
The current/liquidity ratio is mainly used to give an idea of a company's ability to pay back its liabilities
(debt and accounts payable) with its assets (cash, marketable securities, inventory and accounts
receivable).

LIQUIDITY RATIO
HPQ MSFT NVIDIA TWITTER CATERPILLAR Industry Average
2015 0.66 2.47 1.06 8.66 1.28 2.826
2016 0.56 2.35 2.57 7.97 1.22 2.934
2017 0.61 2.92 4.77 9.12 1.35 3.754
2018 0.61 2.9 8.03 4.69 1.37 3.52

Graphical Presentation:

10

8
HPQ
7 MSFT NVIDIA TWITTER CATERPILLAR
Industry Average
6

4
2
3
1

0 2015 2016 2017 2018

Interpretation:
Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety through the
calculation of metrics including the current ratio, quick ratio, and operating cash flow ratio. In the year
2018, the liquidity ratio of NVIDIA is much higher than any other companies. That means NVIDIA is
better capable to pay back its liabilities (debt and accountspayable) with its assets (cash, marketable
securities, inventory, accounts receivable) than others. As such, liquidity ratio can be used to make a
rough estimate of a company’s financial health. Here the industry average is fluctuating over the periods
and all the companies is under the industry average except Twitter.

ACID RATIO
The acid test ratio measures a company's ability to meet its short-term obligations with its most liquid
assets and therefore excludes inventories from its current assets. It is also known as the "quick ratio"

ACID RATIO
HPQ MSFT NVIDIA TWITTER CATERPILLAR Indusry Average
2015 0.1 0.11 0.09 1.8 0.2 0.46
2016 0.19 0.11 0.25 1.69 0.2 0.488
2017 0.19 0.14 0.99 2.81 0.27 0.88
2018 0.15 0.2 3.47 1.25 0.25 1.064

Graphical Presentation:

3.5

3
HPQ
2.5 MSFT NVIDIA TWITTER CATERPILLAR
Indusry Average
2

1.5

0.5

0
2015 2016 2017 2018
Interpretation:
The quick/acid test ratio is an indicator of a company’s short-term liquidity and measures a company’s
ability to meet its short-term obligations with its most liquid assets. In 2018, the quick/acid ratio of
NVIDIA is higher than the other companies. That means this company is more capable than others to
meet its short-term obligations with its liquid assets. Here the industry average is fluctuating from 2016
to 2018 and all the companies is under the industry average except Twitter and NVIDIA.

LEVERAGE RATIO

DEBT TO ASSET RATIO

The debt to asset ratio is a leverage ratio that measures the amount of total assets that are financed by
creditors instead of investors.
DEBT TO ASSET RATIO
HPQ MSFT NVIDIA TWITTER CATERPILLAR Industry Average
2015 0.08 0.54 0.39 0.32 0.81 0.428
2016 0.23 0.63 0.38 0.33 0.82 0.478
2017 0.21 0.65 0.41 0.32 0.82 0.482
2018 0.15 0.68 0.34 0.33 0.82 0.464

Graphical Presentation:

0.9

0.8

0.7
HPQ
0.6 MSFT NVIDIA TWITTER CATERPILLAR
Industry Average
0.5

0.4

0.3

0.2
0.1

0
2015 2016 2017 2018
Interpretation:
The debt to assets ratio is a measurement representing the percentage of a corporation's assets financed
with loans including short term and long term liabilities. Here among 5 companies the percentage of
Caterpillar is comparatively higher than the other companies. That means this company has the high
degree of leverage and high degree of financial risk profile as financed more with debt.Here the industry
average is in linear trend over the periods and all the companies is under the industry average except
Caterpillar and Microsoft.

LONG TERM DEBT TO ASSET RATIO

Long Term Debt to Total Asset Ratio is the ratio that represents the financial position of the company
and the company's ability to meet all its financial requirements.

LONG TERM DEBT TO ASSET RATIO

HPQ MSFT NVIDIA TWITTER CATERPILLAR Industry Average
2015 0.06 0.16 0.19 0.23 0.11 0.15
2016 0.23 0.21 0 0.22 0.11 0.154
2017 0.21 0.33 0.2 0.22 0.1 0.212
2018 0.13 0.3 0.18 0.17 0.1 0.176

Graphical Presentation:

0.35

0.3

0.25
HPQ
MSFT NVIDIA TWITTER CATERPILLAR
0.2
Industry Average
0.15

0.1

0.05

0
2015 2016 2017 2018
Interpretation:
The long-term debt to total assets ratio is a measurement representing the percentage of a corporation's
assets financed with loans or other debt obligations lasting more than one year. Here in the year 2018
among 5 companies the percentage of MSFT is comparatively higher than the other companies. It
indicates that MSFT may find it difficult to repay all of it debt in the upcoming years.Here the industry
average is fluctuating over the periods and all the companies are also fluctuating with the industry
average.

SHORT TERM DEBT TO ASSET RATIO

SHORT TERM DEBT TO ASSET RATIO
HPQ MSFT NVIDIA TWITTER CATERPILLAR Industry Average
2015 0.02 0.03 0 0 0.01 0.012
2016 0.002 0.07 0.19 0 0.01 0.0544
2017 0.003 0.04 0.08 0 0 0.0246
2018 0.016 0 0 0.09 0 0.0212

Graphical Presentation:

0.2

0.18

0.16
HPQ
0.14 MSFT NVIDIA TWITTER CATERPILLAR
Industry Average
0.12

0.1

0.08
0.04
0.06
0.02

0 2015 2016 2017 2018

Interpretation:
The short-term debt to total assets ratio is a measurement representing the percentage of a corporation's
assets financed with loans or other debt obligations lasting one or less than a year. Here the percentage
of Caterpillar is comparatively stable than the other companies. It indicates that Caterpillar may find it
easier to repay all of it debt as they have sufficient assets for short term loan.Here the industry average
is fluctuating over the periods and all the companies are also in fluctuations.

DEBT TO EQUITY RATIO

The debt-to-equity ratio helps in measuring the financial health of a company.

DEBT TO EQUITY RATIO

HPQ MSFT NVIDIA TWITTER CATERPILLAR Industry Average
2015 0.32 1.18 0.63 0.47 4.29 1.378
2016 -1.74 1.69 0.63 0.49 4.68 1.15
2017 -2.01 1.85 0.7 0.47 4.61 1.124
2018 -8 2.13 0.5 0.49 4.59 -0.058

Graphical Presentation:

2
HPQ
0 MSFT NVIDIA TWITTER CATERPILLAR
Industry Average
2015 2016 2017 2018
-2

-4

-6

-8

-10

Interpretation:
The debt to equity ratio indicates how much debt a company is using to finance its assets relative to the
value of shareholders' equity. In the year 2018, the debt to equity ratio of HPQ is low and Caterpillar is
high. A low debt to equity ratio would suggest that the company is not fully utilizing the cheaper source
of finance and a high one would indicate that the company is facing a very high financial risk. But we
cannot conclude anything from the graph because the acceptable range of debt-to-equity ratio varies
from organization to organization.Here the industry average is in linear trend over the periods and all
the companies is under the industry average except Caterpillar and Microsoft.

RETURN ON EQUITY

Return on equity (ROE) is the amount of net income returned as a percentage of

shareholders equity. Return on equity measures a corporation's profitability by revealing how much
profit a company generates with the money shareholders have invested. ROE is expressed as a
percentage and calculatedas:
Return on Equity = Net Income/Shareholder's Equity

ROE RATIO
HPQ MSFT NVIDIA TWITTER CATERPILLAR Industry Average
2015 0.16 0.15 0.14 -0.12 0.17 0.1
2016 -0.64 0.29 0.14 -0.1 -0.01 -0.064
2017 -0.74 0.29 0.29 -0.02 0.06 -0.024
2018 -8.34 0.2 0.41 0.18 0.44 -1.422

Graphical Presentation:
1
0
-1
2015 2016 2017 2018

-2 HPQ
-3 MSFT NVIDIA TWITTER CATERPILLAR
-4 Industry Average
-5
-6

-7
-8
-9
Interpretation:
The ROE is useful for comparing the profitability of a company to that of other firms in the same
industry. It illustrates who effectively the company is turning its cash in the business for better growth.
The higher the return on equity, the more efficient the company's operations make use of those funds. In
this perspective, Caterpillar performed efficiently ROE in 2018 than others.Here the industry average is
in linear trend over the periods but it falls down in 2018 and all the companies is over the industry
average except HPQ.

EARNINGS PER SHARE

Earnings per share (EPS) are the portion of a company's profit allocated to each outstanding share of
common stock. Earnings per share serve as an indicator of a company'sprofitability.
Calculated as:

EPS RATIO
HPQ MSFT NVIDIA TWITTER CATERPILLAR Industry Average
2015 1.15 1.49 1.16 -0.79 4.18 1.438
2016 1.53 2.59 1.14 -0.65 -0.11 0.9
2017 1.48 3.29 2.85 -0.15 1.26 1.75
2018 3.26 2.15 5.03 1.56 10.26 4.45

Graphical Presentation:
12

10

8
HPQ
MSFT NVIDIA TWITTER CATERPILLAR
6
Industry Average
4

0
2015 2016 2017 2018
-2
Interpretation:
The EPS is an important fundamental ratio used in valuing a company because it breaks down a firm's
profits on a per share basis. This is especially important as the number of shares outstanding can change
and the total earnings of a company may not be a real measure of profitability for investors. In the year
2018, Caterpillar has the higher eps than others. Other 4 company is maintaining approximately same
EPS.Here the industry average is fluctuating over the periods and all the companies also fluctuating
with the industry average.

PRICE EARNINGS RATIO

P/E RATIO
HPQ MSFT NVIDIA TWITTER CATERPILLAR Industry Average
2015 10.30 36.93 28.47 0 17.89 18.72
2016 9.70 28.06 93.7 0 0 26.29
2017 14.20 57.34 67.95 0 121.54 52.21
2018 6.28 23.47 26.55 18.42 12.36 17.42

Graphical Presentation:

140

120

100
HPQ
MSFT NVIDIA TWITTER CATERPILLAR
80
Industry Average
60

40

20

0
2015 2016 2017 2018

Interpretation:
P/E ratio tells how much investors are willing to pay per dollar of earnings for a given company. Here,
the ratio of Caterpillar is greatly much higher than others. It indicates that the company’s share has got
more valued than other companies.Here the industry average is fluctuating over the periods and all the
companies is under flutuating situations.
CHAPTER3
REGRESSION
ANALYSIS
 CHAPTER 03: REGRESSION ANALYSIS

CAPITAL ALLOCATION LINE

The capital allocation line (CAL), is a line created on a graph of all possible combinations of risk-free and risky
assets. The graph displays to investors the return they might possibly earn by assuming a certain level of risk with
their investment. The slope of the CAL is known as the reward-to-variability ratio. To identify which stock is
better, we can use the Sharp Ratio. Sharp Ratio= (expected return-risk free rate)/standard deviation. This ratio
measures the actual return of an investment adjusted for the riskiness of the investment.
Slope=E (Rp) –Rf/StdevP= 22.44%/22.01% = 1.01
We have taken a risk free asset which is T-Bill and the rate is 5%. As it is a risk free asset, its standard deviation
is 0. So, in the CAL we have line between the risk free rate and the expected return in the Y axis and we have risk
for these two shown in the X axis.

Standard Expected
Deviation Returns
T-Bill 0.00% 5.00%
Portfolio 22.20% 27.44%

Capital Allocation Line

30.00%
Expected Return

25.00% Portfolio
27.44%
20.00%

15.00%

10.00%

5.00%
T-Bill
0.00% 5.00%
0.00%5.00% 10.00% 15.00% 20.00% 25.00%
Standard Deviation
PORTFOLIO RISK AND RETURN

In order to find the return and risk of the risk portfolio of the five companies, we have assigned weight
to these companies. We assigned 34% weight on the NVIDIA Corporation, 22% weight on Microsoft
Corporation, 6% weight on Twitter, 18% on HPQ Inc& 20% on Caterpillar. Formula for calculating
Portfolio Expected Return is E (rp) = ΣWi× E (ri).

NVIDIA Microsoft
Particular Twitter HPQ Inc Caterpillar Portfolio
Corp. Corp.
Expected Return
4.43% 1.85% -0.07% 1.10% 0.89% 2.29%
(average)
Expected Return
53.18% 22.24% -0.89% 13.22 10.72% 27.44%
(annual)
Standard
Deviation 11.95% 5.46% 14.26% 6.97% 7.92% 6.41%
(average)
Standard
deviation 41.38% 18.92% 49.41% 24.14% 27.4% 22.20%
(annual)

Following the above table’s data we draw the below & showed the efficient frontier of our portfolio.
 Expected (Average) Annual Return
Risk & Return
60.00%
NVDA
50.00%

40.00%
PORTFOLIO
30.00%

20.00% MSFT

10.00% HPQ CAT

TWTR
0.00%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
-10.00%

Annual Standard Deviation

From the above graph, we can conclude that the expected (annual) return and expected (annual)
standard deviation have positive relationship, which means the higher the return of the companies the
greater the risk it is exposed.

REGRESSION ANALYSIS

To simplify analysis, the single-index model assumes that there is only 1 macroeconomic factor that
causes the systematic risk affecting all stock returns and this factor can be represented by the rate of
return on a market index, such as the S&P 500. In this model we can easily assume the condition of the
asset’s return compared to the market condition and firm’s specific risk. Formula of Single Index
Model,
ri = αi + βirm + ei
Here,
ri = Return of the assets
αi = Alpha or abnormal return
β = Beta
rm = Risk Premium
ei = Firm specific surprise or residual (random) returns, which are assumed independent
To extend the formula, we will find the regression of the Single Index Model. Which is -?
(ri – rf) = αi + βi (rm - rf) + ei
Here (ri – rf) is the dependent variable and (rm - rf) is independent. And others are constant.
Now, we will calculate the regression Single Index Model for each of the assets. To calculate we have
collected The S&P 500’s market return from yahoo finance by which we found the risk premium. We
have collected each of the asset’s return then we subtracted the each of the rates of return to risk free
rate which is the rate of the T-Bill and we found excess return.

THE REGRESSION EQUATION FOR HPQ INC.

We know,
(rHPQ– rf) = αi + βi (rS&P 500 - rf) + ei (rHPQ – rf)
= 0.022053+ 1.010418 (rS&P 500 - rf) + 0.047598
Here α is 0.264636 (annually) and 0.022053 (monthly). As it is positive, it’s an attractive stock and
investor should invest in this stock. And this also means that the expected returns of HPQ Inc. will
increase because this value of HPQ Inc. is undervalued. The Beta of HPQ Inc.according to the data that
we found from our analysis is 1.010418. Beta is more than 1, so this asset is more sensitive to the
market. The standard error is 0.047598 which means there is less variability between the actual and
expected value. Correlation of HPQ Inc. with the S&P 500 is 0.998079, Moreover R square is 0.99616,
and this indicates that 99.616 % of movement of HPQ Inc. is due to S&P 500.

THE REGRESSION EQUATION FOR CATERPILLAR

We know,
(rCAT– rf) = αi + βi (rS&P 500 - rf) + ei(rCAT – rf)
= - 0.043240+ 0.945592 (rS&P 500 - rf) + 0.178790
Here α is -0.518880 (annually) and-0.043240(monthly). As it is negative, so it is not an attractive stocks
and the expected return of Caterpillar will decrease because this value of Caterpillar is overvalued. The
Beta of Caterpillar according to the data that we found from our analysis is 0.945592. The standard
error is 0.178790 which means the variability is 17.87 % between the actual and expected value.
Correlation of Caterpillar with the S&P 500 is 0.969182, Moreover R square is 0.939314, and this
indicates that 93.93 % of movement of Caterpillar is due to S&P 500.
THE REGRESSION EQUATION FOR MICROSOFT CORPORATION

We know,
(rMS – rf) = αi + βi (rS&P 500 - rf) + ei (rMS – rf)
= - 0.032306 + 0.947429 (rS&P 500 - rf) + 0.180245
Here α is - 0.387672 (annually) and - 0.032306 (monthly). It is negative so it is not an attractive stock
and the expected return of Microsoft Corporation will decrease because this value of Microsoft
Corporation is overvalued. The Beta of Microsoft Corporation according to the data that we found from
our analysis is 0.947429. The standard error is 0.180245 which means the variability is 18.02 %
between the actual and expected value. Correlation of Caterpillar with the S&P 500 is 0.968818,
Moreover R square is0.938608; this indicates that 93.86 % of movement of Microsoft Corporation is
due to S&P 500.

THE REGRESSION EQUATION FOR NVIDIA CORPORATION

We know,
(rNVIDIA – rf) = αi + βi (rS&P 500 - rf) + ei (rNVIDIA – rf)
= 0.019757+ 0.993033 (rS&P 500 - rf) + 0.193932
Here α is 0.237084 (annually) and 0.019757 (monthly). It is positive so it is an attractive stock and the
expected return of NVIDIA Corporation will increase because this value of NVIDIA Corporation is
undervalued. The Beta of NVIDIACorporation according to the data that we found from our analysis is
0.993033. The standard error is 0.193932 which means the variability is 19.39 % between the actual and
expected value. Correlation of NVIDIA with the S&P 500 is 0.967223, Moreover R square is 0.935521;
this indicates that 93.55 % of movement of NVIDIA Corporation is due to S&P 500.

THE REGRESSION EQUATION FOR TWITTER

We know,
(rTwitter – rf) = αi + βi (rS&P 500 - rf) + ei (rTwitter – rf)
= - 0.071719 + 0.921900 (rS&P 500 - rf) + 0.220332
Here α is - 0.860628 (annually) and - 0.071719 (monthly). It is negative so it is not an attractive stock
and the expected return of Twitter will decrease because this value of Twitter is overvalued. The Beta of
Twitter according to the data that we found from our analysis is 0.921900. The standard error is
0.220332 which means the variability is 22.03 % between the actual and expected value. Correlation of
Twitter with the S&P 500 is 0.955029, Moreover R square is 0.912080, and this indicates that 91.20 %
of movement of Twitter is due to S&P 500.

THE PORTFOLIO REGRESSION EQUATION

We know,
(rP – rf) = αi + βi (rS&P 500 - rf) + ei (rP – rf)
= - 0.021014+ 0.959733 (rS&P 500 - rf) + 0.176205
Here α is - 0.252168 (annually) and - 0.021014 (monthly). It is negative so it is not an attractive
portfolio stock and the expected return of portfolio will decrease because this value of this portfolio is
overvalued. The Beta of Portfolio according to the data that we found from our analysis is 0.959733.
The standard error is 0.176205 which means the variability is 17.62 % between the actual and expected
value. Correlation of Portfolio with the S&P 500 is 0.970866, Moreover R square is 0.942582, and this
indicates that 94.25 % of movement of Portfolio is due to S&P 500.
 CHAPTER4
FINDINGS &
CONCLUSIONS
 CHAPTER 04: FINDINGS &CONCLUSIONS

FINDINGS

1. From the regression analysis we find that αi = Alpha is negative for the Caterpillar, Microsoft &
Twitter stocks and showing positives αi = Alpha for HPQ & NVIDIA stocks.
2. From the regression analysis we find that the firms move in synch with each other because every
firms stock is strongly correlated with the S&P 500, any increase or decrease of this index cause
movement for the each firms stock.
3. Beta table: Security’s sensitivity to the index
Stock Beta (βi)
HPQ 1.010418
CATER(PILLAR 0.945592
MICROSOFT 0.947429
NVIDIA 0.993033
TWITTER 0.921900

From the table we see that, Twitter stock is least (0.921900) sensitive to the S&P 500 index and HPQ is
highest sensitive to the S&P 500 index.
4. Standard error is lowest for HPQ (0.047598) and Caterpillar (0.220332) is highest which expresses
variability between expected and actual value.

CONCLUSIONS

The performance of the companies is comparable in a sense that each of them has different ways to
leverage an investor. From the analysis we can say that NVIDIA Corporation outperformed the other
four stocks in terms of Expected return and Coefficient of Variation. Going forward our investment
weight will be given more on NVIDIA Corporation as it is the best performing stock in the portfolio.
We may also review the feasibility of adding other stocks in the portfolio to make it a well-diversified
portfolio.
REFERENCES

1. Annual reports of HPQ Inc. of 2018, 2017, 2016, 2015, 2014.

2. Annual reports of Microsoft Corporation of2018, 2017, 2016, 2015, 2014.
3. Annual reports of NVIDIA Corporation of 2018, 2017, 2016, 2015, 2014.
4. Annual reports of Caterpillar of 2018, 2017, 2016, 2015, 2014.
5. Annual reports of Twitter of 2018, 2017, 2016, 2015, 2014.
Websites
Yahoo! Finance
Market Screener
Nasdaq.

APPENDICES

Regression Analysis of HPQ

Regression Analysis of Caterpillar

Regression Analysis of Microsoft

Regression Analysis of NVIDIA

Regression Analysis of Twitter

Regression Analysis of Portfolio