# Load packages

# Core
library(tidyverse)
library(tidyquant)

Goal

Calculate and visualize your portfolio’s beta.

Choose your stocks and the baseline market.

from 2012-12-31 to present

1 Import stock prices

symbols <- c("MCD", "ISRG", "KHC", "FIS", "GOOG")

prices <- tq_get(x    = symbols,
                 get  = "stock.prices",    
                 from = "2012-12-31",
                 to   = "2024-12-31")

2 Convert prices to returns (monthly)

asset_returns_tbl <- prices %>%
    
    group_by(symbol) %>%
    
    tq_transmute(select     = adjusted, 
                 mutate_fun = periodReturn, 
                 period     = "monthly",
                 type       = "log") %>%
    
    slice(-1) %>%
    
    ungroup() %>%
    
    set_names(c("asset", "date", "returns"))

3 Assign a weight to each asset (change the weigting scheme)

# symbols
symbols <- asset_returns_tbl %>% distinct(asset) %>% pull()
symbols
## [1] "FIS"  "GOOG" "ISRG" "KHC"  "MCD"
# weights
weights <- c(0.2, 0.2, 0.2, 0.2, 0.2)
weights
## [1] 0.2 0.2 0.2 0.2 0.2
w_tbl <- tibble(symbols, weights)
w_tbl
## # A tibble: 5 × 2
##   symbols weights
##   <chr>     <dbl>
## 1 FIS         0.2
## 2 GOOG        0.2
## 3 ISRG        0.2
## 4 KHC         0.2
## 5 MCD         0.2

4 Build a portfolio

# ?tq_portfolio

portfolio_returns_tbl <- asset_returns_tbl %>%
    
    tq_portfolio(assets_col = asset, 
                 returns_col = returns, 
                 weights = w_tbl, 
                 rebalance_on = "months", 
                 col_rename = "returns")

portfolio_returns_tbl
## # A tibble: 143 × 2
##    date        returns
##    <date>        <dbl>
##  1 2013-01-31  0.0731 
##  2 2013-02-28 -0.00635
##  3 2013-03-28  0.00987
##  4 2013-04-30  0.0247 
##  5 2013-05-31  0.0166 
##  6 2013-06-28  0.00208
##  7 2013-07-31 -0.0519 
##  8 2013-08-30 -0.0104 
##  9 2013-09-30  0.0149 
## 10 2013-10-31  0.0403 
## # ℹ 133 more rows

5 Calculate CAPM Beta

5.1 Get market returns

# Get market returns
market_returns_tbl <- tq_get("MCD",
                             get = "stock.prices",
                             from = "2012-12-31",
                             to = "2024-12-31") %>%

    # Convert prices to returns
    tq_transmute(select     = adjusted, 
                 mutate_fun = periodReturn, 
                 period     = "monthly",
                 type       = "log", 
                 col_rename = "returns") %>%
    
    slice(-1)

5.2 Join returns

# Combine market returns with portfolio returns
portfolio_market_returns_tbl <- portfolio_returns_tbl %>%

    # Add market returns
    mutate(market_returns = market_returns_tbl %>% pull(returns))

5.3 CAPM Beta

# 3 Calculating CAPM Beta ----

# A complete list of functions for performance_fun()
# tq_performance_fun_options()

portfolio_market_returns_tbl %>%

    tq_performance(Ra = returns,
                   Rb = market_returns,
                   performance_fun = CAPM.beta)
## # A tibble: 1 × 1
##   CAPM.beta.1
##         <dbl>
## 1       0.592

6 Plot: Scatter with regression line

# Figure 8.2 Scatter with regression line from ggplot ----

portfolio_market_returns_tbl %>%

    ggplot(aes(market_returns, returns)) +
    geom_point(color = "cornflowerblue") +

    geom_smooth(method = "lm", se = FALSE,
                size = 1.5, color = tidyquant::palette_light()[3]) +

    labs(x = "market returns",
         y = "portfolio returns")

How sensitive is your portfolio to the market? Discuss in terms of the beta coefficient. Does the plot confirm the beta coefficient you calculated?

My portfolio is moderately sensitive to the market. With a beta of 0.592, it tends to move in the same direction as the overall market but at a lesser rate. This lower sensitivity to market fluctuations suggests a relatively stable and less volatile investment portfolio. I would say the plot does a really good job visually confirming the beta coefficient I calculated, as it shows no out of the ordinary highs or lows, usually associated with a beta of ~.6.