Step 1) Opportunity Set Graph:Combine 2 of your stocks (Ignore the other 2 stocksfor this step only). Construct an investment opportunity set (the curved set) between the two risky assets. Graph the resulting curve and on a Mean-StDev graph. Use the X Y (Scatter) option and allow the lines to cross. On the same graph also graph the capital allocation line for one of your portfolios and the risk-free asset. The risky asset for thecapital allocation line should be a portfolio consisting of 40% of Stock 1 and 60% of stock 2.
Step 2) Regressions: Use the "data analysis" and "regression" features in Excel to complete a regression equation for each of your four stocks. Have Excel display the regression statistics on the "Regression Output" page. Enter the alpha, beta, and R-squared from this in your analysis table. Also, use the "slope" function in Excel to calculate the slope of your line. For both the regression analysis and the slope function, specify the data range for the excess return for your stocks from the "Regression Data" page as the y-variable and the data range for the excess return for the S&P index on the "Regression Data" page as your x-variable.
Step 3) Scatter-Plots: Create a scatter-plot of each of your four stocks where the excess returns for the stock are on the y-axis and the excess returns for the S&P 500 are on the x-axis. Have Excel display the plot on the "Scatter Plot" page. Add a trend-line line by selecting (highlighting) the data series, then right click and select "add trend-line." Also display the regression equation and the R2 value on the chart by right-clicking on the trend-line and then selecting "format trend-line." Enter the alpha and beta from this in your analysis table.
Step 4) Complete Table: On the "Analysis" page you will need tocomplete the table of information. Be sure to use the appropriate cell references where applicable.