Bhp and Asx Returns Essay

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Finance Group members 1 2 3 PART I 1. Calculate (discrete) daily returns for both BHP and the S&P/ASX200 index. The discrete daily returns ). Figure 1 daily returns, BHP and S&P/ASX200 Index Figure1 shows from 2004 to 2007 BHP’s annual returns exceeded the returns of the ASX 200. During 2008 the returns of BHP and the index fell. Returns were positive again in 2009 before falling again. The returns of BHP and the broader index are highly correlated. This could be because BHP is one of the largest companies listed on the ASX. Movements in its share price has a large effect on the index. 2. Calculate the measures listed below for both BHP and the S&P/ASX200 index. Use your answers to conclude which of the two instruments has the higher historical average return and volatility of returns. a. Mean and median daily return; b. Maximum and minimum daily return; c. Variance and standard deviation of daily returns; and, d. Skewness and kurtosis of daily returns. Summary statistics | ASX200 | BHP | Mean | 0.025% | 0.073% | Median | 0.057% | 0.103% | Maximum | 5.790% | 12.150% | Minimum | -8.336% | -13.135% | Variance | 0.000121217 | 0.000389582 | Standard Deviation | 0.011009852 | 0.019737823 | Skewness | -0.350280429 | -0.056685626 | Kurtosis | 5.160912523 | 4.657888323 | BHP has a higher historical average return and higher volatility. 3. Calculate the covariance and correlation between the daily returns on BHP and the S&P/ASX200 index. Do the two instruments tend to move in the same or opposite directions? | ASX200 and BHP | Covariance | 0.000171999 | Correlation | 0.791489605 | The two instruments tend to move in the same direction. Because the correlation is close to 1, there should have the positive relationship. According to our calculation, the
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