NOVA SCHOOL OF BUSINESS AND

ECONOMICS

EXXON MOBIL CORP.

REPORT I: RISK AND RETURN ANALYSIS

FINANCIAL MANAGEMENT
2ND SEMESTER | 2014/2015
| GROUP 38 |
INTRODUCTION:
Exxon Mobil Corp. is an American multinational oil and gas corporation headquartered in
Irving, Texas, United States. It is a direct descendant of John D. Rockefeller's Standard
Oil Company, and was formed on November 30, 1999, by the merger of Exxon and Mobil
(formerly Standard Oil of New Jersey and Standard Oil of New York). The world's 5th
largest company by revenue, ExxonMobil is also the second largest publicly traded
company by market capitalization. The company was ranked No. 6 globally in Forbes
Global 2000 list in 2014.Exxon Mobil Corp., coded as XON by the NYSE and publicly
traded for the first time in the 2th of January 1970. Briefly, in this first report on Exxon, it
is intended to evaluate the risk and return of the companys stock.

| Ana Preto #2244 | Martim Moreira #2293 | Jos Loureno #2249 | Omar al Fannoush #1949 |

EXXON MOBIL CORP.

Q1: The Historical Return since IPO

The study of expected returns normally is based on past performances of a security or index, fundamental tool that
allows managers and investors to choose which stocks and projects to invest. Analysts usually review historical
return data when trying to predict future returns or to estimate how much a security might react to a particular
situation, such as a drop in consumer demand. The most common method used is the computation of cumulative
and annualized average returns. Historical returns can also be useful when estimating where future points of data
may fall in terms of standard deviations. Therefore, in this section of the report, we are going to assess Exxon
Mobil Corp. returns through an historical perspective (since August 1980 until the end of February 2015) and
discuss the utility of this method.
First of all to perform the return analysis is necessary to calculate the percentage return (investor would earn per
month by investing in Exxon Mobil Corp.). We extracted monthly data about the gross return (capital gains +
dividends) through Bloomberg. We assumed that this assembly of data was the most suitable mainly because,
provides information with less variability than diary and in sufficient number of observations for a substantial
statistical analysis. The other reason is because both capital gains and dividends are included (as mentioned
before). Therefore, we computed monthly percentage returns and growth rates based on the monthly variation of
gross returns.
In order to do a comparative analysis of data, we took monthly data too from the market S&P500 index (SPX) and
one month US Treasury Bills (T-bills). Additionally the method for calculating rates of return for the market was
identical to the one described above, except on the T-Bills because the risk-free rates were already available. Thus,
arithmetic and geometric average annualized returns were calculated assuming that returns are independent and
identically distributed. The annual arithmetic average of the returns was obtained by multiplying the arithmetic
average of the monthly percentage returns by 12 and the annual geometric average of the returns was determined
by computing the geometric average of 1 plus the monthly rates of return, subtracting the result by 1 and finally
multiplying it by 12 (see Appendix 1 Table 1, Table 2, Table 3 for monthly and annual arithmetic and
geometric average returns). Compounded returns were also determined using 100% as a base value for all data sets,
allowing comparisons among securities, between Exxon Mobil Corp., S&P500 and T-Bills (see Appendix 1
Figure 1 for compounded returns from 1980 to 2015), through the following formula:
Compound Returns (t) = Compound Returns (t-1) x [1 + Monthly Returns (t)]
Through the analysis of the appendixes it is possible to observe that the geometric average annualized returns are
lower than the annual arithmetic average returns, for the Exxon Mobil security example. This inequality is totally
expected because arithmetic average is the sum of a collection of numbers divided by the number of numbers in the
collection thus considering each return as being independent from the others however, the geometric average
indicates the central tendency or typical value of a set of numbers by using the product of their values therefore
taking into account the effect of compounding. In other words, investment returns are not independent of each
other, so they require a geometric average to represent their mean. Based on the previous information and through
empirical studies its demonstrated that geometric average is more reliable and representative on measuring of the
average returns, therefore we can conclude that an investor who decides to invest in Exxon Mobil stock in the end
of 1980 would have earned an average of 1.07% per month and 12.9% on an annual reference, instead of 1.19%
and 14.33% respectively in an arithmetic average, considering the investor held the stock until now. Considering
the same logic, it is possible to assume that investors earned, on average, 8.14% per year with the S&P500
portfolio and 4,49% with one month US Treasury Bill (T-Bills).
Looking now for the representation of compounded returns allows the identification of strong moves and
disparities among the securities, namely concerning the positive growth of Exxon Mobil Corp. returns over the
1

EXXON MOBIL CORP.

years, as well as the returns of the S&P500, however much lower. In general terms, Exxon Mobil Corp. returns
have been much higher relatively to the market and to the risk-free security. Moreover, there was a continuous
growth from 2003 to 2008, instability from 2008 to 2010, due to the financial and economic crisis and a sharp
growth from 2010 to 2011 demonstrating a very effective recover from the economic crises. In 2014, Exxon Mobil
returns have reached the highest compounded return, meaning that for each dollar invested in August 1980,
investors would have earned $79, 75 in January 2015. The risk-free security has proved to be way beyond Exxon
Mobil Corp. and markets performance over the years.
As already mentioned, historical performance of a security may be used to predict future returns and the cost of
capital of an investment. However, this approach has some disadvantages: firstly, the future behavior of a security
may not be the same it was in the past, secondly the older historical data on returns is not very useful when
predicting future returns. This happens because the constant changes in the financial markets reality, thirdly
investors future expectations may not correspond to past estimations. Additionally expected returns obtained from
historical data are subject errors and volatility distorts results even when expectations and market circumstances
are similar. As a conclusion, despite being helpful, the average return that the investors earned in the past is not a
very reliable estimate of a securitys current and future expected returns. Instead, an alternative strategy based on
the Capital Asset Pricing Model (CAPM) should be used. In the following questions, techniques to estimate a more
reliable value of Exxon Mobil expected return will be properly studied.
Q2: Exxon Mobil (Systematic) Risk Analysis
In the sequence of what was previously referenced, in this section of the report its supposed to elaborate methods
that allow the calculation of the Exxon expected returns. Therefore, analyzing and quantifying the risk of the stock
is a fundamental procedure to keep in mind. All over the world, investors face uncertainty related to stock
performance, since companies returns are subjected to risk. Thus, to obtain Exxon risk profile is crucial to calculate
the firm volatility and its beta. The first objective is to elaborate the company beta defined by the standard
deviation of the returns. The second goal is to elaborate the volatility in order to have all requirements to calculate
the systematic and unsystematic risk. Seeing the fact that the stocks annual volatilities are calculated by using the
excel formula (=STDEV(Monthly Return) x SQRT(12)), it is now required to calculate the Beta. According to
the model, the Security Market Line (SML) equation, which relates the market risk premium, the stocks beta and
the risk-free rate with the companys expected return, must be verified for all stocks, assuming the following
formula: E(re)-rf=+e(E[rm]-rf). In that sense, by using historical data, it is possible to run a regression of the
excel add-in Data Analysis between the values for the excess return of the stock in relation to the risk-free rate (Y
Variable) and the values for the excess return of the market in relation to the risk-free rate (X Variable). All the
necessary data to compute risks was collected in the previous section of the report, except for the industry total
returns necessary to compare Exxon risk with its industry risk. Thus, the data set for total gross returns was
obtained in monthly percentage returns were calculated as before. Nonetheless, only 5 years of data were used, in
order to capture the more recent market circumstances.
After performing all the calculations and running the regressions (see Appendix 2 Table 1, Figure 1, Table 2,
Figure 2 for regression results and risk analysis), some final conclusions can be drawn on Exxon risk. An annual
volatility of 16.36% was obtained for Exxon stock, comparing with a markets annual volatility of 12.99%.
Therefore, it is possible to assume that the companys stock is riskier than the market proxy considered (S&P500
Index). Moreover, the stock has a beta of approximately 0.0427 (C.I. [-0.28; 0.39]) while its industry has a beta of
nearly -0.17 (C.I. [-0.57; 0.22]), which means that Exxon systematic risk is higher than that of the industry and that
their returns (both Exxon and the industry) vary less than those of the market (that, in this case, has a beta equal to
1). The market portfolio of all investable assets has a beta of exactly 1. A beta below 1 can indicate either an
investment with lower volatility than the market, or a volatile investment whose price movements are not highly
2

EXXON MOBIL CORP.

correlated with the market. Negative betas are possible for investments that tend to go down when the market goes
up, and vice versa. In finance, systematic risk is measured by ^2_e^2_M, while unsystematic risk is
calculated by ^2_e-^2_e^2_M. After the calculations, it is possible to decompose Exxon risk in
systematic risk (0,003%) and unsystematic risk (2,675%).
Finally, one may argue on the performance of the company relative to the use of CAPM, using the estimated alpha
() of the regression as indicator. Since the estimated value of alpha for Exxon stock is positive 0.006, the asset
outperforms the expected return implied by the CAPM and is, therefore, undervalued. This is a conclusion that can
also be easily verified by representing the SML that illustrates the relation between expected returns and systematic
risk. Since investors only take additional risks if expected returns increase and a beta of 1 corresponds to the
expected return of the market proxy (risk-free asset), therefore it is possible to plot the upward-sloping line of the
SML, using historical data (see Appendix 3-Table 2, Table 3 for the Security Market Line graph). In fact, the
stock is positioned above the SML, confirming the fact that it is undervalued - for its level of systematic risk, the
return is expected to be very high, so investors will buy the stock and the price will gradually increase at the same
time that return decreases until equilibrium is reached.
Q3: Exxon Mobil Expected Return
In order to estimate, in the most reliable and accurate way, Exxon expected return (also called cost of equity), one
should apply CAPM widely known and used techniques. As already mentioned, according to this theory, all stocks
must lie on the SML. For that reason, by relying on a forward-looking (not historical) approach, its intended to
adjust SML parameters to solve for a Forward-Looking SML: the one Month US Treasury Bill was replaced by a
1,97% 10 years US Treasury Bill (for a medium term approach), the betas were those determined in the previous
section of this report (Exxon beta - e 0,043 - and Exxon industry beta - I -0,173 - to account for a
comparable approach, since considering the entire industry is more accurate than considering only a few
competitors) and the forward-looking expected return of the market (E[rM]) still had to be calculated.
In order to determine a forward-looking expected market return (S&P500 Index as the market proxy), its supposed
to collect the market value index and total yields between 2001 until 2014 (dividends in 2014 equal the product
between the market value index and the total yield of that year). Moreover, dividends were assumed to grow at
7.70% in the next five years and from 2013 to 2014 (assuming dividends will grow in a similar way, since there is
no data on this value), to after continue to grow at 8.14% forever (an estimate based on the average earnings
growth made available by the professor) and to be discounted by the expected market return. Thus, the forwardlooking expected market return was determined using the excel add-in Solver, so that the present value of future
cash flows (dividends), that is, the present value of the 5 years growing annuity and growing perpetuity, in 2014,
would equal the market value index in that same year, that is, $2058.9 (see Appendix 3-Table 1 for data on the
estimation of the forward-looking expected market return). This resulted in an expected market return of 13.12%.
Exxon cost of equity was, then, calculated by simply solving the SML equation with the previous values (see
Appendix 3-Table 2, Table 3 for the estimation of Exxon expected return). A forward-looking expected return of
2.45% was obtained using Exxon beta, a higher value than the 0.04% obtained using Exxon industry beta, since the
beta is also lower. These costs of equity are lower comparing with the return determined using historical data
(12.99% annual geometric average return). Therefore, it is possible to confirm what was previously stated on the
dangers of using historical data to estimate stocks expected returns. In fact, there is a difference of 10.54% and
12.94% in the cost of equity from using the historical data and not a forward-looking approach. This misleading
information may cause managers to not invest in a project that actually creates value (in this case, future cash flows
would be heavily discounted if an historical approach is followed) or deceive investors that buy companies stocks.
Nevertheless, it is worth to mention that betas were also obtained with historical, despite more recent, data and also
have an impact on the estimates of Exxon cost of equity.

EXXON MOBIL CORP.

Finally, despite being advisable the use of forward-looking approaches, it can be easily conclude that estimating
expected returns with different methods is important to allow financial and management agents to simulate
different scenarios, with more optimistic and pessimistic estimations, when evaluating investment opportunities.
Q4: Mean-variance Portfolio Choice
For what was previously stated, in this section of the report it is intended to conclude Exxon risk and return
analysis by combining other stocks with Exxon, determining the most efficient portfolios, in an attempt to
approach this study to what actually happens in the financial markets. In addition to the data previously collected
on Exxon and on one Month US Treasury Bills monthly returns, data on Apple Inc. (AAPL)s and on Nike inc.
(NKE)s monthly returns was gathered (using the same total return index available in Bloomberg), so that a
minimum matching sample period of over 10 years was ensured. Excluding the risk-free asset that has a 0 covariance with all companies, annualized co-variances between companies were obtained. Exxon is a considerably
stable company, ranked in S&P 500 as AAA level company. Given the company rating, it is expected that the
company has low risk exposure. In order to assess this information the companies monthly rates of return were
used to compute the annual arithmetic average returns and volatilities (standard deviations). The results were 67%
for volatility and 15.1% for stocks' arithmetic average return. In order for a portfolio be profitable is important to
combine as much stocks from different industries as possible in one portfolio so that risk is eliminated. Even
though diversification benefits always exist, the amount of eliminated risk depends on the degree to which stocks
are exposed to common risks and their returns move together (measured by co-variances and correlation).
Therefore we chose companies from different industries and with different behaviors (regarding the volatility and
arithmetic average return), to have a diversified portfolio.
The companies selected to include the portfolio were Nike (22.63% for arithmetic average return and 35.29% for
volatility) and Apple. (28.49% for arithmetic average return and 46.47% for volatility). Companies monthly rates
of return and annual arithmetic average returns and volatilities (standard deviations) were computed according to
the procedures described in the second section of this report, except the risk-free assets volatility that was set
equal to 0% (see Appendix - Table 1 for stocks annual arithmetic average returns, volatilities and co-variances).
In this report, three different sets of stocks are analyzed: Portfolios I (Exxon & Nike), Portfolios II (Exxon &
Apple) and Portfolios III (Exxon, Apple and Nike), (see Appendix - Table 2; 3; 4). Since the correlation and the
co-variances between stocks returns are positive, one expects diversification benefits to exist.
Mean-variance frontiers are quite helpful in decisions regarding portfolios given that it establishes a relation
between the returns and risk. Through the use of this tool is possible to adjust the weight of each stock in the
investment, in order to achieve the most desirable ratio risk-revenue. The most desirable condition to an investor is
to have the highest revenue at the smallest risk. If a portfolio combines different stocks, its possible to associate
them in order to achieve this scenario. Therefore the most diversified (more stock thus more relation options)
best scenarios are achievable. In our work, we could conclude that the portfolio with more stocks (Portfolio III),
actually present the most benefits of the diversification. Portfolio III (see Appendix 4 Figure 1) is the one
located to the left, meaning that is possible to obtain higher expected returns for any level of risk, comparing
with the other two frontiers. It is also presented the frontiers when the investor cannot take a short position, and we
can verify that if the investor cant borrow from one side to invest on the other (expanding his horizons), the
mean variance frontier gets flatter (see Appendix 4- Table 2). If we were to compare our portfolio option to an
equally weighted portfolio, as a matter of fact, the mean variance frontier of portfolio III already has a point with
similar characteristics (weights of 33,35%; 34,28%; 32,37%, consult Appendix 4- Table 4). Since this line has the
best options to invest, this may mean that an equally weighted portfolio is close to the portfolio best options
(depending on the risk sensibility of the investor). Additionally this could mean that the companies do not differ
4

EXXON MOBIL CORP.

that much between them (the same portion is a good option) or compensate each other weaknesses. Summing
up, since we have already a point in the mean variance frontier similar to the equally weighted option, we can
assume that it may be a good option for the less risk adverse investors.
Short-selling (transaction in which you sell a stock today that you do not own, with the obligation to buy it back in
the future) involves a short position (negative investment) in a stock and on the other hand a long position in
another stock (positive investment). This opens the opportunity given that is possible to sell a less profitable
stock to purchase a more rentable one. This process is profitable as long as the investment is applied in a stock with
higher expected return. Hence, stocks with lower expected return are the ones in which investors hold a short
position, to invest in other of higher return (in this case, Exxon stock is the first to be short-sold). Portfolios
with
more than two stocks and with no short-selling will result in exactly the same expected returns and volatilities as if
short-selling was allowed for expected returns between the lower and the higher expected returns of the individual
stocks (you can reduce the investment in the one with lowest return and look for other options). This happens
because within this range short-selling is not necessary.1
All the portfolios with an expected return lower than the one of the minimum variance portfolio are
inefficient. Reversely, all the portfolios that have an expected return equal or higher than the one of the
minimum variance portfolio are efficient, given that for their level of risk it is not possible to earn higher returns
(See Appendix 4 - Figure 3). Every investment has its risks, and usually with higher risks comes a higher return.
The choice of a portfolio depends on investors risk susceptibility. So, investors that are completely risk-averse
choose the minimum variance portfolio of the mean-variance frontier and risk-loving investors opt for an efficient
portfolio in which their risk preferences are satisfied (ultimately, risk-loving investors may even short-sale).2
Considering a risk free asset is absolutely important to consider the Capital Market Line. By combining a riskfree asset with a portfolio on the efficient frontier, it is possible to achieve portfolios even more lucrative than the
ones in the efficient frontier.3 To achieve the best solution, the risk free asset should be tangent to the portfolio (See
Appendix 4 - Figure 3) and thus the Sharpe Ratio should as steepest as possible. From what have been mentioned
and the (See Appendix 4 - Figure 3), one can conclude that investors are in a best position if they invest-free
security with risky investments, since portfolios with the maximum expected returns, given any level of risk. The
efficient frontier turns to be the steepest line that links the risk-free and the risky investments (and no longer the
portfolios above the minimum variance portfolio) and all the previous mean-variance frontiers become
inefficient. Given the special scenario that a risk free asset provides, with the Capital Market Line, one can
assume that is always the best option given that it provides highest return per unit of volatility of any portfolio
available.

https://books.google.pt/books?id=pwXWZzxXxfwC&pg=PA207&lpg=PA207&dq=which+portfolios+are+efficient+for+short+selling&sour
ce=bl&ots=a7O_rdWf21&sig=9C8gqof1c0x0lwv0YfqHl3HvAU&hl=en&sa=X&ei=ykUMVcWVLIO1Ue3rgJgB&ved=0CCwQ6AEwAA#v=onepage&q=which%20portfolios%20are%2
0efficient%20for%20short%20selling&f=false
2
http://www.investinganswers.com/
3
http://riskencyclopedia.com/articles/capital_market_line/

EXXON MOBIL CORP.

Appendix:
Appendix 1 Question 1
Table 1: Exxon Mobil Corp. arithmetic and geometric average return and volatility

EXXON MOBIL CORP.

ARITHMETIC AVERAGE
GEOMETRIC AVERAGE
RETURN
RETURN

VOLATILITY

MONTHLY

1,18%

1,07%

5,00%

ANNUAL

14,21%

12,79%

17,32%

Table 2: S&P500 Index arithmetic and geometric average return and volatility

MONTHLY
ANNUAL

S&P500 INDEX
ARITHMETIC AVERAGE
GEOMETRIC AVERAGE
RETURN
RETURN
1,00%
0,90%
11,98%
10,83%

VOLATILITY
4,36%
15,10%

Table 3: 1 Month Treasury-bill arithmetic and geometric average return and volatility

MONTHLY
ANNUAL

1 MONTH TREASURY-BILLS
ARITHMETIC AVERAGE
GEOMETRIC AVERAGE
RETURN
RETURN
0,37%
0,37%
4,48%
4,48%

VOLATILITY
0,29%
0,99%

08-08-1980
12-12-1981
04-04-1983
08-08-1984
12-12-1985
04-04-1987
08-08-1988
12-12-1989
04-04-1991
08-08-1992
12-12-1993
04-04-1995
08-08-1996
12-12-1997
04-04-1999
08-08-2000
12-12-2001
04-04-2003
08-08-2004
12-12-2005
04-04-2007
08-08-2008
12-12-2009
04-04-2011
08-08-2012
12-12-2013

Cumulative Return

EXXON MOBIL CORP.

Figure 1: Cumulative Returns

Cumulative Return

10000,00%
9000,00%
8000,00%
7000,00%
6000,00%
5000,00%
4000,00%
3000,00%
2000,00%
1000,00%
0,00%
Exxon

T-Bill

S&P500

Data

EXXON MOBIL CORP.

Appendix 2 Question 2
Table 1: Exxons Risk Analysis

Exxon Mobile Regression

SUMRIO DOS RESULTADOS - EXXON MOBIL
Estatstica de regresso
R mltiplo
0,03396572
Quadrado de R
Quadrado de R
ajust.
Erro-padro
Observaes

Montly Volatility Stock

Yearly Volatility Stock
Montly Volatility
Market
Yearly Volatility
Market
Systematic Risk
Systematic Variance
Unsystematic Risk

0,00115367
0,015775929
0,047608937
61

4,725%
16,366%
3,752%
12,999%
0,003%
2,679%
2,675%

ANOVA

Regresso
Residual
Total

gl
1
59
60

SQ
MQ
0,000154459 0,0001
0,133730041 0,0022
0,133884499

F
0,068145157

F de
significncia
0,794965

Coeficientes
0,006170218

Erro-padro Stat t
0,0063791 0,9672

valor P
0,337364788

95% inferior
-0,006594

0,042754415 0,163780981 0,2610

0,794965879

-0,284970

95%
superior
0,01893
0,37047
9

EXXON MOBIL CORP.

Figure 1: Exxons Risk Analysis

ExxonMobil Regression
15,00%

10,00%

y = 0,0428x + 0,0062
R = 0,0012

E(re)-rf

5,00%

-10,00%

-5,00%

0,00%
0,00%

5,00%

-5,00%

-10,00%

-15,00%

(E(rM)-rf)

10,00%

15,00%

EXXON MOBIL CORP.

Table 2: Industrys Risk Analysis

Industry Regression
SUMRIO DOS RESULTADOS -INDUSTRY
Estatstica de
regresso
R mltiplo

0,11173112

Quadrado de R
Quadrado de R
ajust.
Erro-padro
Observaes

0,01248384

Montly Volatility
Industry
Yearly Volatility
Industry

0,05802884
0,20101782

-0,0042537
0,05815213
61

ANOVA

gl
Regresso
Residual
Total

1
59
60

SQ
MQ
0,0025222 0,00252
0,1995185 0,00338
0,2020408

Coeficiente
s
0,0104666
-0,1727701

Erropadro
Stat t
0,0077917 1,34329
0,2000509 -0,8636

10

F
0,74585796

F de
significnci
a
0,39128819

valor P
95% inferior
0,18432228 -0,0051246
0,391288199 -0,5730712

95%
superior
0,026057
0,227530

EXXON MOBIL CORP.

Figure 2: Industrys Risk Analysis

Industry Regression
25,00%
20,00%
y = -0,1728x + 0,0105
R = 0,0125

15,00%
10,00%
E(rI)-rf

5,00%

-10,00%

-5,00%

0,00%
0,00%
-5,00%

5,00%

10,00%

15,00%

-10,00%
-15,00%
-20,00%

(E(rM)-rf)

Figure 3: Security Market Line

SML
16,000%

y = 0,011x + 3E-05

14,000%
12,000%

SML

10,000%
E(r)

8,000%
Expected Value of Stock

6,000%
4,000%
2,000%

-0,4

0,000%
-0,2
-2,000% 0
-4,000%

Real Value of Stock

0,2

0,4

0,6

11

0,8

1,2

EXXON MOBIL CORP.

Appendix 3 Question 3
Table 1: Estimating Forward Looking Expected Return

Estimating Exxon Mobile Return - Based on

Forward Looking Expected Return for Market
S&P500
Market Growth rate ( Estimation for 5
years)
Market Growth rate (Based on Past Future Growth)
Risk free rate (10 Years treasury Bill)

DIV 2015 (2014 + 1 = 2015)

DIV 2020 (2014 + 5 + 1 = 2020)
PV OF THE MARKET VALUE IN 2013

7,70%
8,14%
1,97%

108,23
169,59
2.058,90

Table 2: Historical Beta

Historical Beta's
Exxon's Beta (e)

E(re)-rf=+e(E(rM)-rf)

0,042754415

2,45%

Table 3: Estimated Beta

Estimated Beta =Industry Beta

Exxon's Beta (e)

-0,172770156

E(re)-rf=+e(E(rM)-rf)

12

0,04%

EXXON MOBIL CORP.

Appendix 4 Question 4
Figure 1: Mean-Variance Frontiers (With Short-Selling)
40,00%
35,00%
30,00%
25,00%
20,00%
15,00%
10,00%
5,00%
0,00%
0,00%

10,00%

20,00%

30,00%

Portofolio I

40,00%

50,00%

Portofolio II

13

60,00%

70,00%

Portofolio III

EXXON MOBIL CORP.

Figure 2: Portfolio III (Mean-Variance Frontier & Short-Selling Effect)

40,00%
Long position on Nike and Apple
and Short position on Exxon

35,00%
30,00%
25,00%

Efficient Portfolios

20,00%
15,00%
10,00%
5,00%
0,00%
0,00%

Long position on Exxon and Short

position on Nike and Apple

10,00%

20,00%

With Short Selling

Inefficient Portfolios

30,00%

40,00%

Portofolio III

50,00%

60,00%

Without Short Selling

Figure 3: Efficient Frontier with Risky Investments and a Risk-free Asset

40,00%
Borrowing at the Risk-Free
Interest Rate to Invest on
Risky Stocks

35,00%

Long position on Nike and Apple

and Short position on Exxon

30,00%
25,00%
20,00%

Tangency point

15,00%

Long position on Exxon and Short

position on Nike and Apple

10,00%
3.94

5,00%
0,00%
0,00%

10,00%

20,00%

30,00%

Portofolio III

40,00%

50,00%

Risk Free Asset

14

60,00%

70,00%

EXXON MOBIL CORP.

Table 1: Expected Return, volatility, and covariance

Expected Return, volatility, and covariance

Exxon
Nike
Apple
Risk free asset

Stocks' Arithmetic
Average Return
15,055%
22,629%
28,489%
3,943%

Covariance
Stocks Volatility
16,676%
35,291%
46,470%
0,000%

15

EXXON
2,774%
1,005%
1,565%
0,000%

Nike
1,005%
12,422%
2,889%
0,000%

Apple
1,57%
2,89%
21,54%
0,00%

EXXON MOBIL CORP.

Table 2: Portfolio I (Exxon & Nike)

Portfolio I (Exxon & Nike)

Investment
on Exxon's
Stock
-20,00%
-15,00%
-10,00%
-5,00%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
40,00%
45,00%
50,00%
55,00%
60,00%
65,00%
70,00%
75,00%
80,00%
81,19%
85,00%
86,59%
90,00%
95,00%
100,00%
105,00%
110,00%
115,00%
120,00%

Investment on
Nike's Stock

Portfolio Expected
Return

Portfolio
Volatility

120,00%
115,00%
110,00%
105,00%
100,00%
95,00%
90,00%
85,00%
80,00%
75,00%
70,00%
65,00%
60,00%
55,00%
50,00%
45,00%
40,00%
35,00%
30,00%
25,00%
20,00%
18,81%
15,00%
13,41%
10,00%
5,00%
0,00%
-5,00%
-10,00%
-15,00%
-20,00%

24,14%
23,76%
23,39%
23,01%
22,63%
22,25%
21,87%
21,49%
21,11%
20,74%
20,36%
19,98%
19,60%
19,22%
18,84%
18,46%
18,08%
17,71%
17,33%
16,95%
16,57%
16,48%
16,19%
16,07%
15,81%
15,43%
15,06%
14,68%
14,30%
13,92%
13,54%

41,91%
40,23%
38,57%
36,92%
35,29%
33,68%
32,09%
30,52%
28,99%
27,49%
26,03%
24,62%
23,26%
21,97%
20,76%
19,65%
18,64%
17,77%
17,05%
16,49%
16,12%
16,06%
15,96%
15,94%
15,99%
16,24%
16,68%
17,30%
18,08%
19,00%
20,05%

16

EXXON MOBIL CORP.

Table 3: Portfolio II (Exxon & Apple)

Investment on
Exxon's Stock
-20,00%
-15,00%
-10,00%
-5,00%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
40,00%
45,00%
50,00%
55,00%
60,00%
65,00%
70,00%
75,00%
80,00%
81,19%
85,00%
90,00%
94,28%
95,00%
100,00%
105,00%
110,00%
115,00%
120,00%

Portfolio II (Exxon & Apple)

Investment on
Portfolio Expected
Apple's Stock
Return
120,00%
115,00%
110,00%
105,00%
100,00%
95,00%
90,00%
85,00%
80,00%
75,00%
70,00%
65,00%
60,00%
55,00%
50,00%
45,00%
40,00%
35,00%
30,00%
25,00%
20,00%
18,81%
15,00%
10,00%
5,72%
5,00%
0,00%
-5,00%
-10,00%
-15,00%
-20,00%

31,18%
30,50%
29,83%
29,16%
28,49%
27,82%
27,15%
26,47%
25,80%
25,13%
24,46%
23,79%
23,12%
22,44%
21,77%
21,10%
20,43%
19,76%
19,09%
18,41%
17,74%
17,58%
17,07%
16,40%
15,82%
15,73%
15,06%
14,38%
13,71%
13,04%
12,37%

17

Portfolio
Volatility
55,19%
52,99%
50,81%
48,63%
46,47%
44,32%
42,19%
40,08%
37,99%
35,93%
33,90%
31,90%
29,95%
28,05%
26,22%
24,47%
22,82%
21,29%
19,91%
18,71%
17,73%
17,54%
17,01%
16,58%
16,47%
16,47%
16,68%
17,19%
17,99%
19,04%
20,29%

EXXON MOBIL CORP.

Table 4: Portfolio III (Exxon, Nike, Apple)

Investment
on Exxon's
Stock
235,20%
216,85%
198,50%
180,15%
161,80%
143,45%
125,10%
115,93%
106,75%
102,16%
97,58%
92,99%
88,40%
83,76%
79,23%
74,64%
70,05%
65,46%
60,88%
56,29%
51,70%
47,11%
42,53%
37,94%
33,35%
28,76%
24,18%
19,59%
15,00%
10,41%
5,83%
1,24%
-3,35%
-7,93%
-12,52%
-21,70%

Investment on
Nike's Stock
-53,01%
-45,08%
-37,14%
-29,21%
-21,27%
-13,34%
-5,40%
-1,43%
2,54%
4,52%
6,50%
8,49%
10,47%
12,48%
14,44%
16,42%
18,41%
20,39%
22,37%
24,36%
26,34%
28,32%
30,31%
32,29%
34,28%
36,26%
38,24%
40,23%
42,21%
44,20%
46,18%
48,16%
50,15%
52,12%
54,11%
58,08%

Portfolio III (Exxon, Nike, Apple)

Portfolio
Investment on
Total Investment
Expected
Apple's Stock
Return
-82,19%
100,00%
0,00%
-71,78%
100,00%
2,00%
-61,36%
100,00%
4,00%
-50,95%
100,00%
6,00%
-40,53%
100,00%
8,00%
-30,12%
100,00%
10,00%
-19,70%
100,00%
12,00%
-14,49%
100,00%
13,00%
-9,29%
100,00%
14,00%
-6,68%
100,00%
14,50%
-4,08%
100,00%
15,00%
-1,48%
100,00%
15,50%
1,13%
100,00%
16,00%
3,76%
100,00%
16,51%
6,34%
100,00%
17,00%
8,94%
100,00%
17,50%
11,54%
100,00%
18,00%
14,15%
100,00%
18,50%
16,75%
100,00%
19,00%
19,35%
100,00%
19,50%
21,96%
100,00%
20,00%
24,56%
100,00%
20,50%
27,16%
100,00%
21,00%
29,77%
100,00%
21,50%
32,37%
100,00%
22,00%
34,98%
100,00%
22,50%
37,58%
100,00%
23,00%
40,18%
100,00%
23,50%
42,79%
100,00%
24,00%
45,39%
100,00%
24,50%
47,99%
100,00%
25,00%
50,60%
100,00%
25,50%
53,20%
100,00%
26,00%
55,81%
100,00%
26,50%
58,41%
100,00%
27,00%
63,62%
100,00%
28,00%
18

Portfolio Volatility
52,37%
46,65%
41,02%
35,53%
30,24%
25,29%
20,93%
19,09%
17,59%
16,99%
16,50%
16,15%
15,93%
15,85%
15,91%
16,12%
16,46%
16,93%
17,52%
18,22%
19,01%
19,88%
20,83%
21,84%
22,90%
24,01%
25,17%
26,36%
27,58%
28,83%
30,10%
31,40%
32,71%
34,04%
35,38%
38,11%

Return
Constrain
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
13,00%
14,00%
14,50%
15,00%
15,50%
16,00%
17,00%
17,50%
18,00%
18,50%
19,00%
19,50%
20,00%
20,50%
21,00%
21,50%
22,00%
22,50%
23,00%
23,50%
24,00%
24,50%
25,00%
25,50%
26,00%
26,50%
27,00%
28,00%

EXXON MOBIL CORP.

-40,05%
-58,40%
-76,75%
-95,10%
33,33%

66,02%
73,95%
81,89%
89,82%
33,33%

74,03%
84,45%
94,86%
105,28%
33,33%

100,00%
100,00%
100,00%
100,00%
100,00%

19

30,00%
32,00%
34,00%
36,00%
22,06%

43,67%
49,35%
55,11%
60,92%
23,03%

30,00%
32,00%
34,00%
36,00%
22,00%