1999 Thomas A.

Rietz
1
Diversification and the CAPM Diversification and the CAPM
The relationship between risk
and expected returns
1999 Thomas A. Rietz
2
ntroduction ntroduction
nvestors are concerned with
Risk
Returns
What determines the required
compensation Ior risk?
t will depend on
The risks Iaced by investors
The tradeoII between risk and return they Iace
1999 Thomas A. Rietz

Agenda Agenda
oncepts oI risk Ior
A single stock
PortIolios oI stocks
Risk Ior the diversiIied investor: Beta
alculating Beta
The relationship between Beta and Return:
The apital Asset Pricing Model (APM)
1999 Thomas A. Rietz

verview verview
nvestors demand compensation Ior risk
I investors hold 'diversiIied portIolios, risk
can be deIined through the interaction oI a
single investment with the rest oI the
portIolios through a concept called 'beta
The APM gives the required relationship
between 'beta and the return demanded
on the investment!
1999 Thomas A. Rietz

'ocabulary 'ocabulary
xpected return:
What we expect to receive
on average
Standard deviation oI
returns:
A measure oI dispersion
oI actual returns
orrelation
The tendency Ior two
returns to Iall above or
below the expected return
a the same or diIIerent
times
Beta
A measure oI risk
appropriate Ior diversiIied
investors
DiversiIied investors
nvestors who hold a
portIolio oI many
investments
The apital Asset
Pricing Model (APM)
The relationship between
risk and return Ior
diversiIied investors
i
i
i
r p r E

=
Measuring Expected Return Measuring Expected Return
We describe what we expect to receive or
the expected return:
OIten estimated using historical averages
(excel Iunction: 'average).
Example: Die Throw Example: Die Throw
Suppose you pay $300 to throw a Iair die.
You will be paid $100x(The Number rolled)
The probability oI each outcome is 1/6.
The returns are:
(100-300)/300 -66.67
(200-300)/300 -33.33 .etc.
The expected return (r) is:
1/6x(-66.67) 1/6x(-33.33) 1/6x0
1/6x33.33 1/6x66.67 1/6x100 16.67!
Example: EM Example: EM
Suppose
You buy and AAPLi contract on the M Ior $0.85
You think the probability oI a $1 payoII is 90
The returns are:
(1-0.85)/0.85 17.65
(0-0.85)/0.85 -100
The expected return (r) is:
0.9x17.65 - 0.1x100 5.88
Example: Market Returns Example: Market Returns
Recent data Irom the M shows the Iollowing
average monthly returns Irom 5/95 to 10/99:
(http://www.biz.uiowa.edu/iem/markets/compdata/compIund.html)
AAPL IBM MSFT SP500 T-BiIIs
Average Return 2.2% .6% .72% 1.7% 0.%
$
-
$
2
,
0
0
0
$
4
,
0
0
0
$
6
,
0
0
0
$
8
,
0
0
0
$
1
0
,
0
0
0
$
1
2
,
0
0
0
$
1
4
,
0
0
0
Apr-95
JuI-95
Oct-95
Jan-96
Apr-96
JuI-96
Oct-96
Jan-97
Apr-97
JuI-97
Oct-97
Jan-98
Apr-98
JuI-98
Oct-98
Jan-99
Apr-99
JuI-99
Oct-99
M
o
n
t
h
VaIue of Investment
A
A
P
L

B
M
M
S
F
T
S
P

0
0
T
-
B
i
l
l
(
2
)
G
r
o
w
t
h

o
f

$
1
0
0
0

n
v
e
s
t
m
e
n
t
s
G
r
o
w
t
h

o
f

$
1
0
0
0

n
v
e
s
t
m
e
n
t
s

2 2 2
2

i i
i
i i
i
i
Var r E r p r E r p o o = = =

OIten estimated using historical averages
(excel Iunction: 'stddev)
Measuring Risk: Standard Measuring Risk: Standard
Deviation and 'ariance Deviation and 'ariance
Standard Deviation in Returns:
Example: Die Throw Example: Die Throw
Recall the dice roll example:
You pay $300 to throw a Iair die.
You will be paid $100x(The Number rolled)
The probability oI each outcome is 1/6.
The expected return (r) is 16.67.
The standard deviation is:
56.93%
% 67 . 16 % 100
6
1
% 67 . 66
6
1
% 33 . 33
6
1
% 0
6
1
% 33 . 33
6
1
% 67 . 66
6
1
2 2 2
2 2
2 2
=
- + -
+ - + -
+ - + -
Example: EM Example: EM
Suppose
You buy and AAPLi contract on the M Ior $0.85
You think the probability oI a $1 payoII is 90
The returns are:
(1-0.85)/0.85 17.65
(0-0.85)/0.85 -100
The expected return (r) is:
0.9x17.65 - 0.1x100 5.88
The standard deviation is:
|0.9x(17.65)
2
0.1x(-100)
2
- 5.88
2
|
0.5
35.29
Example: Market Returns Example: Market Returns
Recent data Irom the M shows the Iollowing
average monthly returns & standard deviations
Irom 5/95 to 10/99:
(http://www.biz.uiowa.edu/iem/markets/compdata/compIund.html)
AAPL IBM MSFT SP500 T-BiIIs
Average Return 2.2% .6% .72% 1.7% 0.%
Std. Dev 1.8% 10.1% 8.22% .82% 0.06%
$
-
$
2
,
0
0
0
$
4
,
0
0
0
$
6
,
0
0
0
$
8
,
0
0
0
$
1
0
,
0
0
0
$
1
2
,
0
0
0
$
1
4
,
0
0
0
Apr-95
JuI-95
Oct-95
Jan-96
Apr-96
JuI-96
Oct-96
Jan-97
Apr-97
JuI-97
Oct-97
Jan-98
Apr-98
JuI-98
Oct-98
Jan-99
Apr-99
JuI-99
Oct-99
M
o
n
t
h
VaIue of Investment
A
A
P
L

B
M
M
S
F
T
S
P

0
0
T
-
B
i
l
l
(
2
)
G
r
o
w
t
h

o
f

$
1
0
0
0

n
v
e
s
t
m
e
n
t
s
G
r
o
w
t
h

o
f

$
1
0
0
0

n
v
e
s
t
m
e
n
t
s
Risk and Average Return Risk and Average Return
T-BiII
S&P500
MSFT
IBM
AAPL
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%
Standard Deviation
A
v
e
r
a
g
e

R
e
t
u
r
n
Measures of Association Measures of Association
orrelation shows the association across
random variables
Variables with
Positive correlation: tend to move in the
same direction
Negative correlation: tend to move in
opposite directions
Zero correlation: no particular tendencies to
move in particular directions relative to each
other
p
AB
is in the range |-1,1|
OIten estimated using historical averages
(excel Iunction: 'correl)
ovariance in returns, o
AB
, is deIined as:

i i
i
i i i
i
i
r E r E r r p r E r r E r p = =

o

o o
o
p =
Covariance and Correlation Covariance and Correlation
The correlation, p
AB
, is deIined as:
otation for Two Asset and otation for Two Asset and
Portfolio Returns Portfolio Returns
tem Asset A Asset B PortIolio
Actual Return r
Ai
r
Bi
r
Pi
xpected Return (r
A
) (r
B
) (r
P
)
Variance o
A
2
o
B
2
o
P
2
Std. Dev. o
A
o
B
o
P
orrelation in Returns p
AB
ovariance in Returns o
AB
o
A
o
B
p
AB
Example: EM Example: EM
Suppose
You buy an MSFT090iH Ior $0.85 and a MSFT090iL
contract Ior $0.15.
You think the probability oI $1 payoIIs are 90 & 10
The expected returns are:
0.9x17.65 0.1x(-100) 5.88
0.1x566.67 0.9x (-100) -33.33
The standard deviations are:
|0.9x(17.65)
2
0.1x(-100)
2
- 5.88
2
|
0.5
35.29
|0.1x(566.67)
2
0.9x(-100)
2
- (-33.33)
2
|
0.5
200
The correlation is:
1 -
200% 35.29%
-33.33% 5.88% - -100% 566.67% 0.1 -100% 17.65% 0.9
=
-
- - - + - -
Example: Market Returns Example: Market Returns
Recent data Irom the M shows the Iollowing
monthly return correlations Irom 5/95 to 10/99:
(http://www.biz.uiowa.edu/iem/markets/compdata/compIund.html)
AAPL IBM MSFT SP500 T-BiIIs
AAPL 1.000 0.262 0.102 0.06 -0.10
BM 1.000 0.20 0.62 -0.169
MSFT 1.000 0.0 -0.07
SP00 1.000 -0.00
T-Bills 1.000
= 0.3777x + 0.0105
CorreI = 0.262
$0
$0
$0
$0
$-
$0
$0
$0
$0
$1
-20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 40.00%
AAPL Return
I
B
M

R
e
t
u
r
n
Correlation of AAPL & BM Correlation of AAPL & BM
Risk and Average Return Risk and Average Return
T-BiII
S&P500
MSFT
IBM
AAPL
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%
Standard Deviation
A
v
e
r
a
g
e

R
e
t
u
r
n
The standard deviation is not a linear
combination oI the individual asset standard
deviations
nstead, it is given by:
1 2 1 +
AB B A A A
2 2
A
2 2
A p
p o o o o o + =

% 08 . 10
262 . 0 1031 . 0 .1484 0 5 . 5x0 . 2x0
1031 . 0 5 . 0 1484 . 0 5 . 0
2 2 2 2
2
p
=
- - - +
- + -
= o
Two Asset Portfolios: Risk Two Asset Portfolios: Risk
The standard deviation a the 50/50, AAPL &
BM portIolio is:
The portIolio risk is lower than either individual
asset`s because oI diversiIication.
Correlations and Correlations and
Diversification Diversification
Suppose
(r)
A
16 and o
A
30
(r)
B
10 and o
B
16
onsider the (r)
P
and o
P
oI securities A
and B as w
A
and p vary...
Case 1: Perfect positive correlation Case 1: Perfect positive correlation
between securities, i.e., between securities, i.e., pp
AB AB
= +1 = +1
8%
9%
10%
11%
12%
1%
1%
1%
16%
17%
0% 10% 20% 0% 0%
Std. Dev.
E
x
p
.

R
e
t
.
(10%,16%)
(16%,0%)
Case 2: Zero correlation between Case 2: Zero correlation between
securities, i.e., securities, i.e., pp
AB AB
= 0. = 0.
8%
9%
10%
11%
12%
1%
1%
1%
16%
17%
0% 10% 20% 0% 0%
Std. Dev.
E
x
p
.

R
e
t
.
(10%,16%)
(16%,0%)
Min. 'ar.
(11.%,1.12%)
Case : Perfect negative correlation Case : Perfect negative correlation
between securities, i.e., between securities, i.e., pp
AB AB
= = - -1 1
8%
9%
10%
11%
12%
1%
1%
1%
16%
17%
0% 10% 20% 0% 0%
Std. Dev.
E
x
p
.

R
e
t
.
(10%,16%)
(16%,0%)
Zero 'ar.
(11.%,1.12%)
8%
9%
10%
11%
12%
1%
1%
1%
16%
17%
0% 10% 20% 0% 0%
Std. Dev.
E
x
p
.

R
e
t
.
r=1
r=0
r=-1
(10%,16%)
(16%,0%)
Comparison Comparison
2 +
2 +
2 +

MSFT IBM, MSFT IBM MSFT IBM
MSFT AAPL, MSFT AAPL MSFT AAPL
IBM AAPL, IBM AAPL IBM AAPL
2
MSFT
2
MSFT
2
IBM
2
IBM
2
AAPL
2
AAPL
p
p o o
p o o
p o o
o o o
o



+ +
=
Asset Portfolios: Expected Asset Portfolios: Expected
Returns and Standard Deviations Returns and Standard Deviations
Suppose the Iractions oI the portIolio are given
by w
AAPL
, w
BM
and w
MSFT
.
The expected return is:
(r
P
) w
AAPL
(r
AAPL
) w
BM
(r
BM
) w
MSFT
(r
MSFT
)
The standard deviation is:
% 59 . 3 0472 . 0
3
1
0364 . 0
3
1
0242 . 0
3
1
= - + - + - =
!
# E
% 75 . 7
240 . 0 0822 . 0 1031 . 0
3
1
3
1
2 +
102 . 0 0822 . 0 1484 . 0
3
1
3
1
2 +
262 . 0 1031 . 0 1484 . 0
3
1
3
1
2 +
0822 . 0
3
1
1031 . 0
3
1
1484 . 0
3
1
2
2
2
2
2
2
2
p
=



+ +
= o
For the aively Diversified For the aively Diversified
Portfolio, this gives: Portfolio, this gives:
For the aively Diversified For the aively Diversified
Portfolio, this gives: Portfolio, this gives:
T-BiII
S&P500
MSFT
IBM
AAPL
Naive
PortfoIio
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%
Standard Deviation
A
v
e
r
a
g
e

R
e
t
u
r
n
The Concept of Risk With The Concept of Risk With
Risky Assets Risky Assets
As you increase the number oI assets in a
portIolio:
the variance rapidly approaches a limit,
the variance oI the individual assets contributes less
and less to the portIolio variance, and
the interaction terms contribute more and more.
ventually, an asset contributes to the risk oI a
portIolio not through its standard deviation but
through its correlation with other assets in the
portIolio.
This will Iorm the basis Ior APM.
PortIolio variance consists oI two parts:
1. Non-systematic (or idiosyncratic) risk and
2. Systematic (or covariance) risk
The market rewards only systematic risk
because diversiIication can get rid oI non-
systematic risk


risk
Systematic
ij
risk
systematic Non
i p
n n
o o o

'
+

'

+ =

1
1
1
2 2
'ariance of a naively diversified 'ariance of a naively diversified
portfolio of assets portfolio of assets
aive Diversification aive Diversification
0%
20%
0%
60%
80%
100%
1
1
0
1
9
2
8

8
2
9
1
1
0
0
Number of Assets
V
a
r
.

o
f

P
o
r
t
f
o
I
i
o
p=
p=2
p=0

ES
XRX
WMT
VIA
U
T
S
R
QUI
P
OAT
NOVL
MSFT
LE
K
JNJ
IBM
HWP
GE
F
EK
DE
CAT
BA
AAPL
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
0.00% 5.00% 10.00% 15.00% 20.00%
Standard Deviation in Return
E
x
p
e
c
t
e
d

R
e
t
u
r
n
26 Risky Assets ver a 10 26 Risky Assets ver a 10
Year Period Year Period
Standard
Devaition
0%
2%
4%
6%
8%
10%
12%
14%
16%
1 7 9
1
1
1

1
7
1
9
2
1
2

Number of Stocks in PortfoIio

E
x
p
e
c
t
e
d

P
o
r
t
f
o
I
i
o

R
e
t
u
r
n

a
n
d

S
t
a
n
d
a
r
d

D
e
v
i
a
t
i
o
n
Average MonthI Return
Consider aive Portfolios of 1 Consider aive Portfolios of 1
through all 26 of these Assets through all 26 of these Assets
(Added in Alphabetical rder) (Added in Alphabetical rder)
The Capital Asset Pricing The Capital Asset Pricing
Model Model
APM haracteristics:
.
i
o
i
o
m
p
im
/o
m
2
Asset Pricing quation:
(r
i
) r
I
.
i
|(r
m
)-r
I
|
APM is a model oI what expected returns
should be iI everyone solves the same
passive portIolio problem
APM serves as a benchmark
Against which actual returns are compared
Against which other asset pricing models are
compared
The dea Behind CAPM The dea Behind CAPM
The value oI an asset reIlects
The risk associated with that asset given
nvestors own a combination oI
The risk Iree asset and
The market portIolio.
A risky asset
Has no eIIect on the risk Iree rate.
IIects the portIolio through its covariance
with it.
The 'market price oI risk is: (R
m
)-R
I
Where do these ideas come Irom?
The Capital Asset Pricing The Capital Asset Pricing
Model Model
Advantages:
Simplicity
Works well on average
Disadvantages:
Makes many simpliIying assumptions about
markets, returns and investor behavior
How do you estimate beta? an all aspects oI
risk be summarized by beta?
What is the true market portIolio and risk Iree
rate?
CAPM Assumptions CAPM Assumptions
No transactions costs
No taxes
nIinitely divisible assets
PerIect competition
No individual can aIIect prices
Only expected returns and variances matter
Quadratic utility or
Normally distributed returns
Unlimited short sales and borrowing and lending
at the risk Iree rate oI return
Homogeneous expectations
Feasible portfolios with Feasible portfolios with
risky assets risky assets
xpected
return (
i
)
Std dev (o
i
)
IIicient
Irontier
Feasible Set
Dominated and Efficient Dominated and Efficient
Portfolios Portfolios
xpected
return (
i
)
Std dev (o
i
)
A
B
C
ow would you find the ow would you find the
efficient frontier? efficient frontier?
1. Find all asset expected returns and
standard deviations.
2. Pick one expected return and minimize
portIolio risk.
3. Pick another expected return and minimize
portIolio risk.
4. Use these two portIolios to map out the
eIIicient Irontier.
xpected
return (
i
)
Std dev ( o
i
)

Utility maximizing
risky-asset portIolio
&tility Maximization &tility Maximization
xpected
return (
i
)
Std dev ( o
i
)

&tility maximization with &tility maximization with

a riskfree asset a riskfree asset
Three mportant Funds Three mportant Funds
The riskless asset has a standard deviation
oI zero
The minimum variance portIolio lies on
the boundary oI the Ieasible set at a point
where variance is minimum
The market portIolio lies on the Ieasible
set and on a tangent Irom the riskIree asset
All risky assets
and portIolios
xpected
return (
i
)
Std dev (o
i
)
Riskless
asset
Minimum
Variance
PortIolio
Market
PortIolio
IIicient
Irontier
A world with one riskless A world with one riskless
asset and risky assets asset and risky assets
Tobin's Two Tobin's Two- -Fund Separation Fund Separation
When the riskIree asset is introduced,
All investors preIer a combination oI
1) The riskIree asset and
2) The market portIolio
Such combinations dominate all other
assets and portIolios
e
m
f m
f e
r r E
r r E o
o

|

+ =


The Capital Market Line The Capital Market Line
All investors Iace the same apital Market
Line (ML) given by:
Equilibrium Portfolio Returns Equilibrium Portfolio Returns
The ML gives the expected return-risk
combinations Ior eIIicient portIolios.
What about ineIIicient portIolios?
hanging the expected return and/or risk oI an
individual security will eIIect the expected return and
standard deviation oI the market!
n equilibrium, what a security adds to the risk oI
a portIolio must be oIIset by what it adds in
terms oI expected return
quivalent increases in risk must result in equivalent
increases in returns.
im X
N
m i i m im
i
N
FC
=
=

o o o p
2
1
ow is Risk Priced? ow is Risk Priced?
onsider the variance oI the market
portIolio:
t is the covariance with the market
portIolio and not the variance oI a security
that matters
ThereIore, the APM prices the
covariance with the market and not
variance per se
)
ER R ER R
here
i f m f i
i
i m im
m
im
m
= +
= =
.
.
o o p
o
o
o
2 2
The CAPM Pricing Equation! The CAPM Pricing Equation!
The expected return on any asset can be
written as:
This is simply the no arbitrage condition!
This is also known as the Security Market
Line (SML).
)
)
% 25 . 7 Er
75 . 0 035 . 0 085 . 0 035 . 0 Er
r Er r Er
IBM
IBM
i f m f i
=
+ =
+ = .
&sing the CAPM: Finding &sing the CAPM: Finding
E(r E(r
i i
) )
Suppose you have the Iollowing
inIormation:
r
I
3.5 (r
m
)8.5 .
BM
0.75
What should (r
BM
) be?
Answer:
)
)
)
)
75 . 0
035 . 0 085 . 0
035 . 0 725 0.0

035 . 0 085 . 0 035 . 0 725 0.0
r Er r Er
IBM
DE
i f m f i
=

=
+ =
+ =
.
.
.
&sing the CAPM: Finding &sing the CAPM: Finding ..
i i
Suppose you have the Iollowing
inIormation:
r
I
3.5 (r
m
)8.5 (r
BM
)7.25
What should .
BM
be?
Answer:
)
)
)
)
% 5 . 8 035 . 0
75 . 0
035 . 0 725 0.0
Er
035 . 0 725 0.0 75 . 0 035 . 0 Er
75 . 0 035 . 0 Er 035 . 0 725 0.0
r Er r Er
m
m
m
i f m f i
= +

=
=
+ =
+ = .
&sing the CAPM: Finding &sing the CAPM: Finding
E(rm) E(rm)
Suppose you have the Iollowing inIormation:
r
I
3.5 .
BM
0.75 (r
BM
)7.25
What should (r
m
) be?
Answer:
)
)

% 5 . 3
75 . 0 1
75 . 0 085 . 0 725 0.0
r
75 . 0 1 r 75 . 0 085 . 0 725 0.0
75 . 0 r 75 . 0 085 . 0 r 725 0.0
75 . 0 r 085 . 0 r 725 0.0
r Er r Er
f
f
f f
f f
i f m f i
=

=
=
+ =
+ =
+ = .
&sing the CAPM: Finding r &sing the CAPM: Finding r
ff
Suppose you have the Iollowing inIormation:
(r
m
)8.5 .
D
0.75 (r
D
)7.25
What should r
I
be?
Answer:
otes on Estimating b's otes on Estimating b's
Let r
it
, r
mt
and r
It
denote historical returns Ior
the time period t1,2,...,T.
The are two standard ways to estimate
historical .`s using regressions:
Use the Market Model: r
it
-r
It
-
i
.
i
(r
mt
-r
It
) e
it
Use the haracteristic Line: r
it
a
i
b
i
r
mt
e
it
-
i
a
i
(1-b
i
)r
It
and .
i
b
i
Typical regression estimates:
Value Line (Market Model):
5 Yrs, Weekly Data, VW NYS as Market
Merrill Lynch (haracteristic Line):
5 Yrs, Monthly Data, S&P500 as Market
Example Characteristic Line: Example Characteristic Line:
AAPL vs S&P00 (EM Data) AAPL vs S&P00 (EM Data)
= 0.1844x + 0.0182
R
2
= 0.0022
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-15% -10% -5% 0% 5% 10% 15%
S&P500 Premium
A
A
P
L

P
r
e
m
i
u
m
Example Characteristic Line: Example Characteristic Line:
BM vs S&P00 (EM Data) BM vs S&P00 (EM Data)
= 0.9837x + 0.0191
R
2
= 0.1325
-30%
-20%
-10%
0%
10%
20%
30%
40%
-15% -10% -5% 0% 5% 10% 15%
S&P500 Premium
I
B
M

P
r
e
m
i
u
m
Example Characteristic Line: Example Characteristic Line:
MSFT vs S&P00 (EM Data) MSFT vs S&P00 (EM Data)
= 1.1867x + 0.027
R
2
= 0.3032
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
-15% -10% -5% 0% 5% 10% 15%
S&P500 Premium
M
S
F
T

P
r
e
m
i
u
m
otes on Estimating otes on Estimating ..'s 's
Betas Ior our companies
AAPL BM MSFT SP500
Raw: 0.1844 0.9838 1.1867 1
Adjusted: 0.4563 0.9891 1.1245 1
Avg. R: 2.42 3.64 4.72 1.75
Average Returns vs Average Returns vs
(Adjusted) Betas (Adjusted) Betas
MSFT
IBM
S&P500
AAPI
T-BiIIs
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
- 0.20 0.40 0.60 0.80 1.00 1.20
Beta
A
v
e
r
a
g
e

R
e
t
u
r
n
1999 Thomas A. Rietz
6
Summary Summary
State what has been learned
DeIine ways to apply training
Request Ieedback oI training session
1999 Thomas A. Rietz
6
Where to get more information Where to get more information
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List books, articles, electronic sources
onsulting services, other sources