Construct optimal risky portfolio

Construct optimal risky portfolio

 

 

The learning outcome of writing assignments is twofold.
1. Apply the knowledge covered in this course to the real world. It is ?real?because the perfor-
mance of your forecasts will be part of the report grades.
2. Improve the ability to communicate complex investment concepts and strategies to customers
and investors in writing. See the attached grading rubric for details.
The format of the report should be 12 points, double space, limited to 2 pages excluding tables
and ?gures.
This is supposed to be an analyst?s report to custormers and investors. See attached professional
analysis as an example and learn how a ?nancial analyst does the analysis. This writing assignment
is a creative activities. Tailor your writing in a most consice and e¤ective style.
The drafts will be group reports, which have opportunity to receive feedback and be revised. The
draft must be submitted electronically on Blackboard before the due date
Construct optimal risky portfolio using global ETF ACWI
1. Download most recent 36 month stock prices of the company you identi?ed in your ?nancial
statement analysis and ETF ACWI. ACWI is a exchange traded fund (ETF) based on a global
index. ACWI can be downloaded as the same as stocks on ?nance websites. If you use Yahoo!
Finance,
(a) go to Yahoo! Finance;
(b) type the symbol of your stock or ACWI;
(c) click on “Historical Prices” on the left;
(d) set date range (recent 36 months);
(e) click “Get Prices”;
(f) click on “Download to Spreadsheet”.
2. Using the adjusted close prices in the historical data you download, calculate
(a) mean
(b) variance
(c) and standard deviation of the stock and ACWI.
3. Using of the historical data you download, calculate
(a) covariance
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(b) and correlation coe¢ cient between the stock and ACWI.
4. Compute the expected returns (means) and the standard deviations of the portfolio for di¤erent
weights of the stock and ACWI.
5. Plot the expected returns (means) and the standard deviations of the portfolio for di¤erent
weights of the stock and ACWI.
6. Summarize your portfolio construction, explain how correlation between the stock and ACWI
a¤ects the portfolio performace, and what you have learned from the portfolio construction.
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Appendix: Evaluation Rubric
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Walmart ACWI
Date Adj Close Return Adj Close Return
1/2/2013 69.95 0.025208852 149.7 0.051190225
12/3/2012 68.23 -0.047333147 142.41 0.008926674
11/1/2012 71.62 -0.040075057 141.15 0.005700036
10/1/2012 74.61 0.016623518 140.35 -0.018256855
3/2/2009 47.62 0.064134078 73.56 0.083357879
2/2/2009 44.75 0.045072396 67.9 -0.107518402
1/2/2009 42.82 76.08
Mean (Monthly) 0.011185267 0.015316722
Variance 0.001892876 0.002281735
Std deviation (monthly) 0.043507192 0.047767506
Covariance 0.000537135
Correlation coeff 0.258458037
Mean (annual) 0.134223204 0.183800662
Std deviation (annual) 0.150713333 0.165471493

Portfolio performance
Weight
Walmart SPY Standard deviation Standard deviation
0 1 0.165471493 0.183800662
0.05 0.95 0.159311977 0.181321789
0.1 0.9 0.15351162 0.178842917
0.15 0.85 0.148112623 0.176364044
0.2 0.8 0.143160404 0.173885171
0.25 0.75 0.138702826 0.171406298
0.3 0.7 0.134788972 0.168927425
0.35 0.65 0.131467411 0.166448552
0.4 0.6 0.128783981 0.163969679
0.45 0.55 0.12677921 0.161490806
0.5 0.5 0.125485626 0.159011933
0.55 0.45 0.124925327 0.15653306
0.6 0.4 0.125108164 0.154054188
0.65 0.35 0.126030902 0.151575315
0.7 0.3 0.127677501 0.149096442
0.75 0.25 0.130020463 0.146617569
0.8 0.2 0.133022996 0.144138696
0.85 0.15 0.136641629 0.141659823
0.9 0.1 0.140828876 0.13918095
0.95 0.05 0.145535667 0.136702077
1 0 0.150713333 0.134223204