1. Calculate the variability (standard deviations) of the stock returns of California REIT and Brown Group during the past 2 years (as given in the case) How variable are they compared with Vanguard 500? Which stock appears to be the riskiest? Also, download the prices of S&P 500 from yahoo from January 2014 to January 2016 and calculate the variability during this period. How do you compare the variability in the 1990s with the current variability?
2. Calculate the risk of the portfolio (the standard deviation) composed of Vanguard 500 and California REIT for portfolio weights ranging from 0% to 100%, including 1% in California REIT; do the same for the portfolio composed of Vanguard and Brown, based on the information provided in the case. How is the risk of the portfolio changes in each situation? Which portfolio seems to have lower risk?
3. Calculate the beta risk measure of each of California REIT and Brown. How does the betas compare with the market’s beta? Which stock is risker than the other? What type of risk does the beta captures? Give an example of such risk.
4. Describe the active portfolio management process. Assuming you are a portfolio manager with similar portfolio allocation decisions as in the case, but today, in the current market conditions. Which stock you consider adding to your portfolio? Give one reason related to each of the general economy, the industry and the company to support your decision.
5. Describe an active management strategy different from the market timing strategy mentioned in the case. How it can be implemented? Give an example using actual company or companies under the current market conditions.