Project 4: Finding Your 401(k) Beta
The following report will evaluate and compare the systematic risk of the stocks within a 401(k) investment portfolio. The time period for which the stocks in this investment portfolio have been analyzed is January 1, 2004 through December 31, 2014. Each stock has had a beta test and corresponding regression analysis performed. A portfolio-wide beta test has also been completed to make further detailed conclusions. The beta of each stock will be compared to that of its standard. Any observations made from the betas will also be reported. The below table represents the stock breakdown of the 401(k) investment portfolio. The portfolio consists of twelve stocks, representing seven of the major industry categories. Six of the twelve stocks come from the consumer goods industry, with half being cyclical and the other half being non-cyclical. The remaining industry categories included in this portfolio are two from industrials and one of ...view middle of the document...
Only two of the of the stocks in this portofilio were more volatile than the market during this period. Looking at beta alone, this portfolio is in good standing concerning market volatility.
All industry categories have a common beta variance, and this is because acceptable beta can widely vary depending on the industry. For instance, technology stocks commonly have a beta of over 1, offering a chance of higher returns. With this, also comes higher risks and thus increased volatility. Apple (AAPL) is the only technology stock in this portfolio, and brings in a beta of 0.97, which is less than the industry standard of over 1. According to this information, Apple would be less of a financial risk than many of its technologocial peers. During this period, Apple has also had a very high rate of return as represented by the below chart.
Energy stocks typically carry a beta of less than 1. The only energy stock in this portfolio is Exxon Mobil (XOM), which carries a beta less than that of its industry standard. Exxon has also had a fairly solid return during this time period. General Electric (GE), which has the highest beta in this portfolio, is still within the industry average. General Electric had the worst rate of return during the time period, which is an ineteresting correlation when taking into consideration that it had the highet beta as well. The remaining stocks were at or below their respective beta industry standards, and had fairly substantial rates of return during this period. Exxon Mobil (XOM)
General Electric (GE)
In conclusion, this 401(k) investment portfolio was less volatile than the market over this time period. Each stock within this portfolio had a beta test and corresponding regression analysis performed. Only two stocks peaked above the beta 1 threshold, while the remaining stocks were all at or below 0.97. All of the stocks were at or below their respective industry standards for beta. There was an interesting correlation between the beta and rate of return concerning some of the stocks with higher betas. The rates of returns on these stocks were less than those stocks with lower betas. All in all, using beta to evaluate this portfolio has shown just how valuable beta analysis can be in determining what stocks can be best for one’s portfolio.