Darden Capital Management: The Cavalier Fund Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Darden Capital Management: The Cavalier Fund Case Solution

The argument of Kinross Gold

Leadi Cole claims towards the risk level of Groupon and compares the standard deviation between Groupon and Kinross and presents that they are (wildly volatile) returns along with their annualized standard deviations of (67.5% and 65%) respectively. Sam Kramer presents his view on the stocks along with their associated risk and his argument that Kinross Gold provides the finest complete risk-returns impression. However, with this claim Prey disagreed that Kinross Gold only provides (8%) of expected returns and claim that (only a fool invested in this stock). Furthermore, Kramer agreed with the claim of Prey that Kinross Gold is not making much sense.

Investors Price Risk

The CAPM (Capital Asset Pricing Model) is a widely practiced model inside the organization to identify the risk that is related to the stocks and its impact on investors' investments(Zerbib, 2022). Kramer presents a benchmark concept, which includes CAPM. The risk that was common inside the organization is a material and systematic risk that not be eliminated from portfolio diversification that impacts highly on investors. Looking at this logic of determining price risk for investors CAPM is used as a benchmark return, which includes (Rf, Beta, and MRP)which is the (Rf rate), the stocks beta, and MRPof market portfolio by using the formula of CAPM.

R_i = R_f + B * MRP

It is the appropriate way to determine the stocks-related risk by using its beta through the CAPM model.

Tradeoff the relation Between Risk and Return

The overall risk returns tradeoff concludes that the rising in price potential ultimately increases the risk factor for stocks(Cornell, 2021). Risk-Return is used as a trading principle that, presents high returns with high risk. Investors and the organization use the CAPM method to determine the relationship between its return and risk by using Beta estimation based on the organization’s stock returns with the comparison of its market portfolio returns. Those stocks that consider a high relationship with the market portfolio include a high beta risk and those that consider a low relationship with the overall market portfolio present a low beta risk.

Risk-Adjusted Benchmark

It is used as a concept or method to measure the risk that relates to investment returns(Korteweg, 2022). This Risk-Adjusted Benchmark is beneficial to compare the different individual stocks as well as the market portfolio. It is used to measure the earned profit from an investment that relates to the investment risk under specific periods.

Risk-Adjusted Benchmark Return on the S&P 500 Portfolio on Proposed Stocks

The new team of portfolio managers including four persons was integrated into its resolution to beat the fund’s benchmark (standards and poor S&P 500 index) in the coming years. Risk-Adjusted returns are calculated by using the risk-free rate deducting it from the investment returnand then dividing itby the standard deviation of stocks or market portfolios. For calculating risk-adjusted returns the risk-free rate is (3.4%), which is considered from the statistics of annual returns for various stocks. Risk-Adjusted return for proposed stocks is (Delphi = 86.29%, Groupon = -19.61%, Kellogg = 54.79% and Kinross Gold = -8.31%). Risk-adjusted returns for the S&P 500 portfolio are (43.22%). The overall, calculation presents Delphi presents a high-risk-adjusted return as compared to other stocks that consider more beneficial for Cavalier Funds Management.

Conclusion

The overall analysis of the Cavalier Funds Management is to select the best stock from the four prosed stocks by using the risk-adjusted returns the help the Cavalier fund identify the best stocks by considering this risk towards the returns. After calculations and analysis, Delphi considersthe best and recommended stock for Cavalier Funds Management......................

Darden Capital Management The Cavalier Fund Case Solution

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Darden Capital Management: The Cavalier Fund Harvard Case Solution & Analysis