Investment Analysis of Nike and Advance Auto Parts

From the Beta calculations, it is evident that Nike has a Beta of 0.9813. The Advance Auto Parts, on the other hand, has a Beta of 1.0426. For this reason, it can be concluded that the Advance Auto Parts Beta is more volatile than the Nike Beta. In other words, Nike has a slightly lower risk than the Advance Auto Parts stock. An increase of the stock market by 10% would mean a good indication of the rise of the stock. Subsequently, an increase in the stock would make the Beta lower for each of the two companies (Advance Auto Parts and Nike). As a result, the risks of the investments would be significantly lowered. The figure 1 and 2 below present the calculations of the Beta for a period of one year (i.e., from May 2013 to May 2014) for each of the stocks in the two companies.

Figure 1: Calculations of the Beta for the Advanced Auto Parts

Figure 2: Calculations of the Beta for Nike Company

Question B: Historical Average and Standard Deviation

The 2014 financial statements for Auto Parts and Nike as well as the relevant equations were used in the determination of the rate of return. The data was helpful in the preparation of the standard deviation and historical average for the two stocks for each month. In particular, the average and the standard deviation function on page 251 of the textbook was used for calculating the Annualized Average and Standard Deviation.

Figure 3: The Relevant Data for Calculating Standard Deviation

Figure 4: Graphical Representation of Monthly Rate of Return for Nike and Advanced Auto Parts