Wacc & risk vs expected return trade-off.
It is crucial to evaluate the potential cost of a company’s past performance and current market conditions. It is therefore important to collect and organize past data about securities to be able to make informed decisions regarding portfolio construction.
To start off my evaluation I retrieved past security prices from various sources such as Bloomberg, S&P Capital IQ and Yahoo Finance. This included stock quotes for the company’s primary stock and bonds as well as secondary stocks held in different sectors. To assess relative risks of investing in certain securities, I used this information to calculate key financial ratios like the price-to earnings ratio (P/E), yield on assets (ROA), and dividend yield (DY).
Next I conducted a thorough analysis of macroeconomic indicators like inflation rate, unemployment rate and GDP growth that would impact the company’s investment decisions by sector or industry groupings. If interest rates were to rise, bond investments could be considered more appealing than equities because they are linked with fixed income instruments. This was in addition to examining the political stability and potential risks associated with these investments.
I then used all of this information to create scenarios for portfolio construction. These included both the short-term and long-term goals. The goal was to maximize returns while minimizing risk. It was possible to maximize profits and minimize losses by diversifying across assets such as stocks, bonds, and cash equivalents.