Home Depot - Technical Analysis, Senior Management Report

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  • Topic: Jensen's alpha, Statistics, Treynor ratio
  • Pages : 4 (1074 words )
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  • Published : February 8, 2008
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Home Depot Inc: Senior Management Report

Data was collected from CRSP daily observations for Home Depot starting January 1993 and ending December 2004. Observations for S&P and Home Depot were matched, and also for the T-Bill composite which is used as a substitute for the risk free rate. No unusual data patterns were observed during the work-up. After having done the Event Check, no large differences in the slopes of the data in the periods before and after 911 were discovered and both periods are used. The data matches the usual modeling assumptions and thus, results are to be expected to be interpreted without contradictions.

HD' Market Rating Analysis (MRA):
Jensen's Alpha ( ) was largely in the positive range. Therefore, Home Depot return was greater than the S&P return and HD outperformed the market. Beta ( ) was in the range of [1,1275959 to 1,0648879] and thus contained 1,0. So HD's risk/return profile is not much different from the market. (See appendix, p. 1) The Market SPI was higher than the HD's Sharpe ratio, and therefore the market return is higher relative to total risk and the investor is better compensated for risk taken. On the other side, the TPI of the market was lower than Home Depots' Treynor ratio and thus, the company gives higher return relative to non-diversifiable risk (See Appendix, p. 1). The BH-L Relative Unique Risk (RUR) was 47,8% which offers a moderate return for investors for risk taking (See Appendix, p. 2). For the -group the 95% Confidence Interval on the mean contained zero and the Standard Deviation Group is all in the negative zone. In the Peer comparison Home Depot did better than its peers, but was below the average in the standard deviation grouping (See Appendix, p. 2-3).

A general assessment of the company will help in evaluating the future performance of the stock. H.D. is in an advanced expansion stage, with strong growth in the last years through an aggressive growth policy. That is why it is likely that...
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