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volatility = std(data.stk_ret)=0.019
volatility_index = std(data.index_ret) = 0.0066
Through regression, we deduct the exponential return X of the risk-free interest rate and the stock return Y of the risk-free return, i.e. index_ret1 and stk_ret1 in the table. the formular is
The coefficient of the regression independent variable is 1.327。
Here we get a beta of 1.32, which is
obviously greater than 1, which means that the fluctuation of stock is greater than that of SP500. We get the fluctuation rate of SP500 is 0.0066, and the fluctuation rate of stock is 0.019, which further verifies that the fluctuation of stock is greater than that of SP500.
1.2
The price-earnings ratio of SP500 is about 19 times in 2017-2018, while that of AAL is about 13 times. Compared with the lower price-earnings ratio of the market, it can be considered as a value stock.
1.3
Calculate beta of HML with CAMP formula. The dependent variables are market rate of return and HML factor. The formula is
It can be seen that the beta value of HML is 0.0044 and the corresponding p value is 0.004. It can be considered that the beta value is significantly different from 0 at 5% confidence level.
1.4
The conclusion of 1.2 is that AAL is a value stock, i.e. the value is underestimated, so it will be exposed in theory on the P/E factor. The result of 1.3 indicates that the exposure of AAL on the P/E factor is 0.0044, and obviously not 0, which is consistent with the result of 1.2.
1.5
When buying the stock, short the SP500 share of the corresponding part at the same time, thereby reducing the beta of the stock and index portfolio and making the beta meet expectations.
2.
Using the closing price data of AAL, UAL, ALK, LUV from 20160801 to 20180801 and the annual report data of 2017, we can get the closing price data of 20180801 as follows:
AAL close 39.540000915527344
UAL close 80.4000015258789
ALK close 62.83000183105469
LUV close 58.15999984741211
The formular of EBITDA is
EBITDA = Total Operating Revenue – Operating Cost – Total Operating Cost
From the Annual Report of 2017 we can get
AAL’s total operating income is 3693300, operating cost is 850500, total operating expenses is 1499500, EBITDA = 1343300, circulating shares are 46058.15, long-term debt = 2251100.
UAL’s total operating income is 3343900, operating cost is 1386200, total operating expenses are 1319400, EBITDA = 638300, circulating shares are 27246.44, long-term debt = 1170300.
ALK’s total operating income is 693200, operating cost is 259000, total operating expenses are 278800, EBITDA = 155400, circulating shares are 12329.99 , long-term debt = 226200
LUV’s total operating income is 1931400, operating cost is 643100, total operating expenses are 853700, EBITDA = 434600, circulating shares are 56230.66, long-term debt = 332000.
AAL 20180801 closed at 39.54
UAL 20180801 closes at 80.4
ALK 20180801 closed at 62.83
LUV 20180801 closed at 58.16
AAL’s Enterprise Value/EBITDA = (39.54 mul 46058.15+2251100) / 1343300 = 3.03
UAL’s Enterprise Value / EBITDA = (80.4 mul 27246.44 + 1170300) / 638300 =5.27
ALK’s Enterprise Value/EBITDA = (62.83 mul 12329.99+226200) / 155400 = 6.44
LUV’s Enterprise Value/EBITDA = (58.16 mul 56230.66+332000)/ 434600 = 8.29
2.2
AAL and UAL are both in the aviation industry and have similar business. From the Enterprise Value/EBITDA calculated above, we can find that AAL and UAL are close to Enterprise Value/EBITDA, which indicates that the valuation of the net market ratio of the two companies is similar, that is, the market underestimates the two companies at the same level. so UAL is the most appropriate comparable firm to UAL