Low Risk Portfolio

Please post your initial responses to the following questions in a new thread, and comment on others’ under their corresponding threads.

Please respond to the following questions:

1. Is it possible to form a low risk portfolio by combining two very risky stocks in the portfolio? Explain why or why not.

2. Beta and Standard Deviation (S.D.) are the two fundamental measurements for risk in Finance. Look for your “assigned company” in the attached “Company List” file, and follow the instruction below.

(1) Find “your company’s” beta:

Find your company’s beta from the Yahoo Finance link below, by keying “your company’s” ticker symbol(listed in the last column in the Company List file) into the “Quote Lookup” box at the upper right corner. (The one shown in the link is Target’s summary information. You need to key in “your company’s” ticker symbol to see your company’s summary information, where beta is one of the items listed there.)

(2) Find your company’s standard deviation (S.D.):

Find your company’s standard deviation (S.D.) from the following link, and key in your company’s ticker symbol to the box right after the word “Symbol” in that link and hit the red “Refresh” button:


** The one shown in the link is Target’s S.D. You need to key in “your company’s” ticker symbol to see your company’s S.D.

*** It is free to use from the following website. But, there might be a limit of number of times (e.g., maximum two times) that you may try before they require you to provide your information to them. So, make sure that you key in the company’s ticker symbol correctly at the first or second time.)

(3) Find S&P 500 Index’s standard deviation (S.D.) by keying in S&P 500’s ticker symbol (^GSPC) in the link above. Then, make a table such as the one listed below and fill in the numbers that you found (Note: Since S&P 500 represents the market as a whole, by definition of the beta you should know what S&P 500’s beta should be without checking):

BetaStandard Deviation
“Your Company”
S&P 500 Index

(4) Is your company’s beta larger or smaller than S&P 500’s beta? What does it mean if it is smaller (or larger) than S&P 500’s beta? (Check the definition of beta)

(5) Is your company’s S.D. larger or smaller than S&P 500’s S.D.? What does it mean if it is smaller (or larger) than S&P 500’s S.D.? (Check the definition of S.D.)

(6) If your company’s beta is larger (smaller) than S&P 500’s, then would you expect that your company’s S.D. also has to be larger (smaller) than S&P 500’s? Why or why not?

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