In the previous article, we examined the economic dynamics impacting Goldman Sachs (GS), JPMorgan (JPM), Bank of America (BAC), and Citigroup (C). In this article, we'll analyze these firms from a portfolio management perspective. We'll take a look at the geometric mean monthly returns, monthly variance, monthly standard deviation and correlation with the market. In the next article, we'll conclude this series on financial firms with conclusions and recommendations.
For the most part Goldman Sachs's monthly returns are inside of +/-20 percent.
Bank of America is more volatile than Goldman Sachs, and most of its monthly returns are inside of +/-50 percent.
Citigroup is about as volatile as Bank of America, and almost all of its monthly returns are inside of +/-50 percent.
JPMorgan is about as volatile as Goldman Sachs, and almost all of its monthly returns are inside of +/-20 percent.
Monthly Mean Return
JPMorgan is the only firm with a positive geometric mean monthly return. JPMorgan's geometric mean monthly return is 0.1 percent. Citigroup has the lowest geometric mean monthly return at negative 3.2 percent.
Variance is a measure of the volatility or dispersion of returns. The higher the variance, the less predictable the returns and the more risky the investment.
Between 2006 and now, Citigroup and Bank of America have the highest variances followed by Goldman Sachs and JPMorgan. In other words, JPMorgan should provide investors with the most predictable returns.
Standard deviation is a measure of the volatility of an asset. Between 2006 and now, the standard deviation of JPMorgan's monthly returns is 9.9 percent. The standard deviation of Goldman Sachs's monthly returns is 10.4 percent. The standard deviation of Bank of America's monthly returns is 16.9 percent. The standard deviation of Citigroup's monthly returns is 17.7 percent.
In the period between 2006 and now, JPMorgan and Bank of America were the least correlated with the S&P 500 (SPY). However, all of the firms are strongly correlated with the market. That said, JPMorgan and Bank of America would provide the most diversification benefits.
Investors seeking a less volatile portfolio should consider JPMorgan and Goldman Sachs. Traders should consider Bank of America and Citigroup.
To be continued...
Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.