PART A
Capital Asset Pricing Model (CAPM)
We decided to use the ASX100 for the CAPM model and the main benchmark of our portfolio report. The ASX100 presents the large Australian companies and we believe that the ASX100 is a valid proxy of our frameworks. As Adjusted R Square in Table 1 show, most of the stock returns are expounded by the market return. The Beats in the table below are presented by a significantly low p-value. The beat of the stock presents the sensitivity of that store return to the market return. The CAPM model demonstrates that the Australia New Zealand Banking Group Limited (ANZ), Bank of Queensland (BOQ), Bendigo and Adelaide Bank Ltd (BEN) and National Australia Bank Limited (NAB) stocks have beats greater than 1. The data shows stocks are relatively aggressive stocks in relation to the ASX100 market. However, the Telstra Corporation Ltd (TLS) and Dexus Property Group (DXS) have defensive stocks. The alpha in CAPM table presented anticipated data that was lesser than expected equated to the alpha of TLS which has 0.15 yearly alpha and the alpha of the innovative assortment which is 0.05 as an annual alpha.
PART B
Multi factors Model
The purpose of Multi factors Model is to find other proxies that may present the returns of the stocks and portfolio. We decided to apply four supplementary factors that may have indirect affiliation with our stocks. Those factors are:
The Correlation Coefficient Matrix
The table of Correlation Coefficient Matrix shown that there is no significant relationship between the factors. We decide to use the Oil as a main factor because it has undeviating impression on global economy. We include a Home Value Index (AUAUSDF) because it also has a direct relationship with the real estate industry, matching one of our imperative stocks, which is DXS. Comparatively, the interchange between Chinese Yuan and Australian dollar were chosen because the impact of exports and imports with China as a large partner. Moreover, most of our stocks are with financial companies, which impact the company at a transaction level between Australia and China. The gold also is an important factor that has a relationship to the financial market.
Multi factors Table
However, the adjusted R-squared in the Multi Factors Table shown that the return of stocks and original portfolio is not explicated by the multi factor model while it was presented clearly by the CAPM model. This condition might happen because those factors are not the best additional aspects or the features best used in the model may be impacted by economic circumstance such as over-pricing, under-pricing or correction. Thus we think the CAPM is the best model that we can use in order to study our stocks returns in relation to the market.
The Historical, CAPM, and Multi factors Returns
The table 3 provides the returns of the historical Data, CAPM and Multi-Factor. The CAPM results show returns very close to the historical returns that again signal CAPM with ASX100 as a valid proxy for our stocks and original portfolio. CAPM outperformed the others by using a significant proxy which is ASX100 and respecting the risk of each separate stock. We can see that CAPM results returns more than what delivered from historical or Multi-Factor model.
Table 3 Returns
