Top 10 S&P 500 potential Companies to invest in

KAHAROU BAWA BOUAKRI

1/11/2022

Data Extraction
This study focused on all the S&P 500 comapanies. The dataset was obtained live from both wikipedia and
yahoo finance using webscraping technique.

Descriptive statistics
I used the Adjusted daily prices of S&P 500 stocks. The top 10 companies with the higest range are
“NVR”,“AMZN”, “GOOG”,“GOOGL” ,“BKNG” , “AZO” ,“CMG”,“MTD”,“TSLA”,“BLK”.
## # A tibble: 10 x 2
## Ticker rang
## <chr> <dbl>
## 1 NVR 5384.
## 2 AMZN 3623.
## 3 GOOG 2797.
## 4 GOOGL 2779.
## 5 BKNG 2473.
## 6 AZO 1950.
## 7 CMG 1858.
## 8 MTD 1608.
## 9 TSLA 1227.
## 10 BLK 865.
These ranges represent the difference between the minimum and maximum price of these 10 stocks from
January 4th, 2010 to January 6th, 2022.
the overall summary statistics of the top 10 S&P 500 stocks with the highest range can be seen below:
## NVR AMZN GOOG GOOGL
## Min. : 575.3 Min. : 108.6 Min. : 217.2 Min. : 218.3
## 1st Qu.: 900.4 1st Qu.: 258.0 1st Qu.: 373.2 1st Qu.: 375.0
## Median :1594.1 Median : 593.6 Median : 706.6 Median : 725.2
## Mean :2058.6 Mean :1069.6 Mean : 872.4 Mean : 876.8
## 3rd Qu.:3086.0 3rd Qu.:1752.5 3rd Qu.:1140.5 3rd Qu.:1146.3
## Max. :5959.3 Max. :3731.4 Max. :3014.2 Max. :2996.8
##
## BKNG AZO CMG MTD
## Min. : 175.2 Min. : 154.4 Min. : 86.43 Min. : 94.1
## 1st Qu.: 694.9 1st Qu.: 382.4 1st Qu.: 324.63 1st Qu.: 197.9
## Median :1287.7 Median : 664.7 Median : 454.28 Median : 336.3
## Mean :1311.3 Mean : 698.5 Mean : 590.94 Mean : 480.3
## 3rd Qu.:1860.4 3rd Qu.: 833.7 3rd Qu.: 688.04 3rd Qu.: 652.8
## Max. :2648.2 Max. :2104.0 Max. :1944.05 Max. :1702.5
##

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## TSLA BLK
## Min. : 3.16 Min. :102.5
## 1st Qu.: 17.54 1st Qu.:174.1
## Median : 46.15 Median :305.4
## Mean : 124.74 Mean :344.7
## 3rd Qu.: 66.89 3rd Qu.:437.3
## Max. :1229.91 Max. :967.0
## NA's :122
The ggplot below shows an upward trend for all the 10 stocks from January 2010 to January 2022.

AMZN AZO BKNG BLK

2000 2500
3000 2000 750
1500
2000 1500
1000 500
1000
1000 500 500 250
0
CMG GOOG GOOGL MTD
2000 3000 3000
1500
Adj_close

1500
2000 2000
1000
1000

500 1000 1000 500

2010 2015 2020 2010 2015 2020

NVR TSLA
6000
900
4000
600

2000 300

0
2010 2015 2020 2010 2015 2020
Date

2
 6000

Ticker
AMZN
AZO
4000
BKNG
Adj_close

BLK
CMG
GOOG
GOOGL
2000
MTD
NVR
TSLA

2010 2015 2020

Date

S&P 500 Risk Modeling and Assessment

I focused on this part on the 442 S&P 500 stocks that have available data from 2010 to January 6th, 2022. Of the
442 stocks, the result of our findings (view output below) shows that the top 10 companies with highest return
include: Netflix(NFLX), Dexcom( DXCM), Nvidia(NVDA), Abiomed(ABMD), Domino’s Pizza(DPZ), United
Rentals(URI), Align Technology(ALGN), Advanced Micro Devices(AMD) and Fortinet(FTNT). However, the
top 10 less volatile stock are: Johnson & Johnson(JNJ), Procter & Gamble(PG), PepsiCo(PEP),Verizon Com-
munications(VZ), Coca-Cola(KO),Colgate-Palmolive(CL), Kimberly-Clark(KMB),Duke Energy(DUK),Waste
Management(WM), Consolidated Edison(ED). Clearly we can see that high return stock are not the less
volatile, actually as the a law of finance state and I cote “more return are expected for taking more risk”.
But these 10 stocks are very stable as they have the lowest variance of all the 442 stocks involved in
this study. These stocks ranges from consumer product to utilities and communication companies. No-
tice that the top 10 most volatile S&P 500 companies include: Advanced MicroDevices(AMD), American
Airlines Group(AAL),Penn National Gaming(PENN), APA Corporation(APA), Freeport-McMoRan(FCX),
Netflix(NFLX), United Airlines(UAL), Marathon Oil(MRO), Royal Caribbean Group(RCL), Micron Tech-
nology(MU). It’s worth noticing that of all the top 10 most volatile stocks only Netflix made it to the top
10 highest return or should i say the highest retun of the top 10. Also, of all the top 10 high return stocks
none but Netflix appears in the top 10 most volatile stocks. With that beeing said we could assume that one
would be better off investing on all the top 10 with high return except Netflix(NFLX) since they appear to
be less volatile and so can be relied upon for making up a high return portfolio.

Top 10 with highest retunrs

## NFLX DXCM NVDA ABMD URI DPZ ALGN AMD
## 0.1925926 0.1767527 0.1742357 0.1635656 0.1596628 0.1584035 0.1521336 0.1498327
## AVGO FTNT
## 0.1496565 0.1491714

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Top 10 with highest risks
## AMD AAL PENN APA FCX NFLX UAL MRO
## 12.703827 11.005572 10.523110 10.409478 10.354418 10.004569 9.400819 9.232551
## RCL MU
## 9.126235 9.012439

Top 10 with lowest risks

## JNJ PG PEP VZ KO CL KMB DUK
## 1.116849 1.141714 1.179425 1.192688 1.195686 1.285462 1.309442 1.369595
## WM ED
## 1.381334 1.399795
Let’s deepen our analysis with portfolio optimization model like correlation and Extreme values analysis.

Correlation Analysis
The top 10 high return stocks are all highly correlated. This means a shock in one might lead to a shock in
the others.
## corrplot 0.84 loaded
##
## Attaching package: 'rstatix'
## The following object is masked from 'package:timeSeries':
##
## filter
## The following object is masked from 'package:stats':
##
## filter
## # A tibble: 10 x 11
## rowname NFLX DXCM NVDA ABMD DPZ URI ALGN AMD AVGO FTNT
## * <chr> <dbl> <dbl> <dbl> <dbl> <dbl> <dbl> <dbl> <dbl> <dbl> <dbl>
## 1 NFLX 1 0.92 0.9 0.91 0.98 0.9 0.95 0.89 0.96 0.88
## 2 DXCM 0.92 1 0.94 0.72 0.93 0.87 0.89 0.96 0.91 0.95
## 3 NVDA 0.9 0.94 1 0.75 0.91 0.92 0.94 0.97 0.92 0.97
## 4 ABMD 0.91 0.72 0.75 1 0.89 0.8 0.88 0.69 0.86 0.72
## 5 DPZ 0.98 0.93 0.91 0.89 1 0.91 0.94 0.89 0.97 0.9
## 6 URI 0.9 0.87 0.92 0.8 0.91 1 0.95 0.86 0.94 0.91
## 7 ALGN 0.95 0.89 0.94 0.88 0.94 0.95 1 0.9 0.95 0.92
## 8 AMD 0.89 0.96 0.97 0.69 0.89 0.86 0.9 1 0.9 0.95
## 9 AVGO 0.96 0.91 0.92 0.86 0.97 0.94 0.95 0.9 1 0.91
## 10 FTNT 0.88 0.95 0.97 0.72 0.9 0.91 0.92 0.95 0.91 1

Extrem values analysis: The Block Maxima approach

In this subsection the block maxima method is applied to the daily losses of S&P 500 stocks. We will use the
Fit Generalized Extreme Value Distribution (GEV) function to determine the top 10 stocks the the lowest
Value at Risk(VaR) and the Expected Shortfall(ES). The function’s argument block has been set to 21. This
will extract the Monthly maxima of the series which represent the 21 trading days per Month.
The findings of my analysis from the Block Maxima approach shows that the top 10 S&P 500 stocks with the
lowest Value at risk(VaR) and expected shortfall are: Verizon Communications(VZ), PepsiCo(PEP), Xcel
Energy(XEL), Duke Energy(DUK), Southern Company(SO), Public Service Enterprise Group(PEG), CMS

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Energy(CMS), Linde(LIN), Consolidated Edison(ED), American Electric Power(AEP). The value at risk for
Verizon Communications(VZ) is 5.36 and the expected shortfall is 6.36. This means considering the monthly
extreme values (extreme losses), if a loss is to occur in the next trading day (January 7th, 2022), verizon
share holders would have lost at least 5.35%. If that happens the average expected lost would be 6.33%.
Notice that Verizon Communications(VZ), PepsiCo(PEP), Duke Energy(DUK), Consolidated Edison(ED)
are part of the top 10 less volatile stocks and they fall in the utilities and communication companies.
From the Block maxima plot below of Verizon(VZ) the finding of a relatively stable(less volatile) stock
throughout the sample period is mirrored in this graph exept for some few cases where we had some spikes.
Hence, the assumption of identically distributed block maxima might be met. PepsiCo(PEP) appears to
be more stable than Verizon exept for an isolated case that happens toward the end of the sample period
(around 2020). Both stocks have recorded high losses around 2020.

Maximum Monthly Losses of Verizon

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Block Maxima

10
5

0 20 40 60 80 100 120 140

5
 Maximum Monthly Losses of PepsiCo

8
7
6
Block Maxima

5
4
3
2
1

0 20 40 60 80 100 120 140

All coefficients are significantly different from zero(view output below) except the shape parameter
S(Mean=0.06, SE=0.62). The estimate of the shape parameter, S(not significantly different from zero),
implies the existence of heavy tails and non-finite losses- that is, the GEV is of the Gumbel type. Clearly,
we can see from the plot below that the density plot is exponential. Probability and quantile in Verizon
and PepsiCo plot plots, data points in the far right tail are well captured by this model specification. This
can be attributed to the relatively uniform/stable losses witnessed every Month in the sample period. This
artifact shows up in the return level plot. For data points in the far right tail the estimated return levels
systematically fall short compared to the empirical levels, though the latter stayed within the 95% confidence
bands. In addition to these diagnostic plots, further inference from the model can be made using the profile
log-likelihoods. The figures below show these for a 23-years and 5-years return level (upper panel) and for
the shape parameter (lower panel) respectively for Verizon and PepsiCo. A daily loss as high as 18.62%
would be observed once every 23 years for Verizon. However, a daily loss as high as 7.73% would be observed
once every 5 years for PepsiCo. This point estimate shows how stable both companies are and how unlikely a
huge or extreme loss would occur within a year with Pepsico stocks.
## Loading required package: mgcv
## Loading required package: nlme
##
## Attaching package: 'nlme'
## The following object is masked from 'package:dplyr':
##
## collapse
## This is mgcv 1.8-33. For overview type 'help("mgcv-package")'.
## $conv
## [1] 0
##
## $nllh
## [1] 281.74
##
## $mle

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## [1] 2.3663518 1.2625433 0.2541478
##
## $se
## [1] 0.12076529 0.09911149 0.07453710
Probability Plot Quantile Plot

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Empirical
Model

0.6

5
0.0

0.0 0.2 0.4 0.6 0.8 1.0 2 4 6 8 10 12 14

Empirical Model

Return Level Plot Density Plot

Return Level

25

0.20
f(z)
10

0.00
0

1e−01 1e+00 1e+01 1e+02 1e+03 0 5 10 15 20

Return Period z

## If routine fails, try changing plotting interval

## If routine fails, try changing plotting interval

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Profile Log−likelihood

−550

5 10 15 20 25 30

Return Level
Profile Log−likelihood

−1e+06

−1.0 −0.5 0.0 0.5 1.0

Shape Parameter
## $conv
## [1] 0
##
## $nllh
## [1] 217.7727
##
## $mle
## [1] 1.5881418 0.8096606 0.2537908
##
## $se
## [1] 0.07864498 0.06487649 0.08112234

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 Probability Plot Quantile Plot

7
Empirical
Model

0.6

4
0.0

1
0.0 0.2 0.4 0.6 0.8 1.0 2 4 6 8 10

Empirical Model

Return Level Plot Density Plot

Return Level

15

0.3
f(z)
0 5

1e−01 1e+00 1e+01 1e+02 1e+03 0.0 0 2 4 6 8

Return Period z

## If routine fails, try changing plotting interval

## If routine fails, try changing plotting interval
Profile Log−likelihood

−350

5 10 15 20 25 30

Return Level
Profile Log−likelihood

−1e+06

−1.0 −0.5 0.0 0.5 1.0

Shape Parameter

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Conclusion
This study focused on all the five hundred and six (506) S&P 500 companies. While there was no data
available for two of the compnies, I first focused on the 503 companies with available data, however little
for some. I found that the top 10 most valued companies(high range price) include NVR, AMZN, GOOG,
GOOGL, BKNG , AZO, CMG, MTD, TSLA, BLK. Overall these stocks shows no sign of slow down when it
comes down to their prices.
Some of the companies were founded and listed to the stock exchange just of recent and so do not have
available data. Focusing our study on the 442 S&P 500 stocks that have available data from January
5th 2010 to January 6th 2022. Of the 442 stocks, I found that the top 10 companies with the highest
return include: Netflix(NFLX), Dexcom( DXCM), Nvidia(NVDA), Abiomed(ABMD), Domino’s Pizza(DPZ),
United Rentals(URI), Align Technology(ALGN), Advanced Micro Devices(AMD). It was also revealed from
the correlation analysis that these comapnies are highly correlated. The top 10 less volatile stocks are:
Johnson & Johnson(JNJ), Procter & Gamble(PG), PepsiCo(PEP),Verizon Communications(VZ), Coca-
Cola(KO),Colgate-Palmolive(CL), Kimberly-Clark(KMB),Duke Energy(DUK),Waste Management(WM),
Consolidated Edison(ED). None of the most valued companies made it to the highest return or less volatile
list.
While digging deep our study with extreme value analysis, the Block Maxima approach shows that the top
10 S&P 500 stocks with the lowest Value at risk(VaR) and Expected shortfall(ES) are: Verizon Communica-
tions(VZ), PepsiCo(PEP), Xcel Energy(XEL), Duke Energy(DUK), Southern Company(SO), Public Service
Enterprise Group(PEG), CMS Energy(CMS), Linde(LIN), Consolidated Edison(ED), American Electric
Power(AEP).

Recommendation
For a long term investment, stable or less risky stocks, I would recommend Verizon Communications(VZ),
PepsiCo(PEP), Duke Energy(DUK), Consolidated Edison(ED). These four companies fall in the utilities
and communication cathegory. Therefore the top 10 most reliable and stable S&P 500 companies would
be in the Electric utilities, communication and comsumer staples(soft drink) and should include Verizon
Communications(VZ), PepsiCo(PEP), Xcel Energy(XEL), Duke Energy(DUK), Southern Company(SO),
Public Service Enterprise Group(PEG), CMS Energy(CMS), Linde(LIN), Consolidated Edison(ED), American
Electric Power(AEP). This study shows how stable these companies and sector/industry are and how unlikely
a huge or extreme loss would occur. It’s important to avoid holding a portfolio made up of all or many of the
high return stocks since they are all highly correlated.

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