Comparison of Information Gathered in 2(b) and 1(b)
The field of finance is extremely broad, and it usually depends upon the working of sophisticated models and tools to analyze the things accordingly. Investment is one of the most important elements that stride under the field of finance, as it is important for the long run productivity and efficacy of an organization as well as an economy particularly. The tradeoff of risk and return cannot be ignored, as both of these things are interlinking with each other. It is an important thing for an investor to overcome on the issues of riskiness to have effectiveness in their earnings (Ehrhardt and Brigham, 2003).
There are numerous methods that can be used specifically for managing the risk in an organized and perfect manner. One of the major methods associated with mitigating the riskiness in an investment is Hedging. A hedge is an investment position that intends to offset the associated losses and gains that may be incurred in an investment (Donoghue, 1982). The information contain in both of the answers (1b and 2b) are totally different than each other. The information found in the 1b is about the average monthly return of three selected companies. Standard Deviation that analyzes the riskiness in a stock is computed in the same answer.
The answers mentioned in (1-b) are not about comparing the level of riskiness among these three selected companies which are Sainsbury, BAT and GSK. The relationship among these three riskiness levels are missing completely, while in summary output of 2(b), the relationship among these company’s risk factor is located with the name of Beta. The regression statistics discussed in the computation of 2(b) are more towards to analyze the fact that how much the result is relevant to meet with the hypothesis testing accordingly. Precisely, it can say that there is no comparison among the information computed in 1-B and 2-B, as both of the computations are delivering different results.
Correct interpretation of the beta for gold calculated
As per Fama and French (2004), beta of an investment is a measure of the risk arising specifically from the exposure to the movements of general market. It is basically a relationship of a market portfolio with an individual portfolio (Ehrhardt and Brigham, 2003). In this part (2b), this particular financial tool is used to analyze the level of systematic risk among the monthly return of gold and FTSE-100 index.
References
Donoghue, E. (1982). Formula for the weight-average molecular weight beyond the gel point.Macromolecules, 15(6), pp.1634-1635.
Ehrhardt, M. and Brigham, E. (2003). Corporate finance. Mason, Ohio: Thomson/South-Western.
Fama, E. and French, K. (2004). The Capital Asset Pricing Model: Theory and Evidence. Journal of Economic Perspectives, 18(3), pp.25-46.
