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Investments Portfolio Management

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You are to write a written report with an introduction. It is based on 10 days of virtual trading: the results are in the spreadsheet attached.

Attached are the following
Power point – you can use some of the material
Excel – please copy all relevant tables and charts in the written report

The Portfolio Management Term Paper will utilize the data you have collected to evaluate the performance of your portfoliosoverthe10 day period.
The Term Project Paper will be developed in 3parts.The paper will combine all 3parts:

Price History Report
Table1: Target Asset Allocation Table2: Initial Portfolio Weights Table3: Final Portfolio Weights
Table4: ETF Fund Category, Company Sector and Industry
Table5: Daily Time Series Prices
Table6: Daily Market Values=P * Q
Table7: Portfolio Return and Investment Return

Table8: Daily Total Returns for the Security Universe and Portfolio
Figure1: Asset Allocation
Figure2: Initial Portfolio Weights
Figure3: Final Portfolio Weights
Figure4: Daily Total Return Time Series
Figure5: Cumulative Terminal Wealth

Written Portfolio Management Report
Table9:Security,Portfolio and Market Statistics Table10:Correlation Matrix
Table11: Performance Measures
Figure6:The Capital Market Line(CML) Figure7:The SML and the CAPM
Figure8: Sharpe Performance Measures Figure9: Treynor Performance Measures Figure10: Alpha Performance Measures

Include all tables and figures and your discussion.
Figures 1-10

Part 2 Portfolio Management Report Draft

Portfolio Management Paper
Try to develop a clear understandable report that does not require the reader to search through many pages to find information.Give results from your tables do not refer to them. Number and clearly labell all Figures and insert them with your discussion. Clearly identify which discussion questions you are answering. Your grade will be based on the organization and presentation of your results as well as upon the content of the paper.

Contents To be included in the report
Title Page
Table of Contents
Executive Summary(Abstract) Introduction

– Portfolio Strategy and Investment Policy
– Asset Allocation
– Security Screening and/or Security Selection Criteria
– Initial and Final Portfolio Weights
– ETF Fund Category/Company Sector and Industry
Collect Daily Security Prices

Portfolio and Investment Profit or Loss
Computation of Returns
– T-Bill
– Market Index(S&P 500)
– Securities
– Portfolio

Cumulative Wealth
Security, Portfolio and Market Statistics
– Mean, Standard Deviation, and Variance
– Geometric Mean and Terminal Wealth
– Beta Computed with a Characteristic Line Regression
– Percent of Systematic Risk(Goodness of Fit, RSquared) Correlation Matrix
Capital Market Line(CML) and the Efficient Frontier
Security Market Line(SML) and the CAPM Risk Adjusted Performance Measures
– Sharpe
– Treynor
– Jensen’s Alpha Conclusions and Recommendations References and Links

Executive Summary


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First write an executive summary or abstract of the project describing the situation and process you used along with your outcome.


Describe your investment strategy and why you think it suits this high-net-worth investor. Discuss the asset allocation of your portfolio. Show the securities in your initial portfolio and the weights you assigned each. Tell why you chose the investments in your portfolio. What was your strategy, reasoning or rational? Tell how you found these securities. What screeners did you use etc. Briefly describe the nature of each investment and its industry. Below is the example portfolio:


Discuss Table9 with security, portfolio and market statistics For example
• Does your portfolio have high or low Beta?
• What can you say about the risk characteristics of your portfolio?
• What is the meaning of the arithmetic and geometric mean why are they different? What are the purposes of each measure?
• Which security had the highest Terminal Wealth?
• Did this security also have the highest total or systematic risk? Which appear to be a better measure of risk; total risk (variance)or systematic risk (Beta)?
• Was your portfolio successful in reducing total risk below the total risk for the average security in the portfolio?
• Was your portfolio successful in reducing the total risk below the total risk of the S&P 500?
• What does the Systematic Risk of your portfolio indicate about the returns your portfolio would be expected to earn when the market is rising and falling?
• What percentage of the risk of your portfolio is systematic?


Correlation Matrix – SEE EXCEL
ConstructTable10:Correlation Matrix showing the correlation matrix. Note that you can use a spread sheet function to find these correlations.(The Excel function to find correlation is CORREL(Y, X))

1 T
Cov(ri(t),rj(t))= T-1 Σ (ri(t) – E(ri))(rj(t) – E(rj))

ρ =Cov(ri(t),rj(t))/(σ (ri(t)* σ,rj (t))

Excel functions: Corrleation(ρ) =CORREL(E35:N35,E$36:N$36) R2 = ρ2


• For you correlation matrix which security seems to be providing the most diversification to your portfolio and Why?
• What securities had a high correlation with the market?


Capital Market Line (CML) and the Efficient Frontier

Plot the Capital Market Line(CML)using an Excel chart.Show the securities,your portfolio,the market index and the risk free rate.First create a table in Excel and use it to construct an XY (scatter)chart of expected daily return versus standard deviation.Label the securities on the Graph and draw in the CML.Figure6 show this chart for the example.

• What is the theory behind the CML and the Efficient Frontier?
• Does your portfolio appear fairly priced according the CML?
• Is your portfolio over or undervalued?Which way should their prices move according to the theory?
• Does you portfolio fall closer to the CML than the individual securities?


Security Market Line (SML) and the CAPM,

Plot the Security Market Line(SML)using Excel.Show your portfolio,the market index,the risk free rate and the securities in your portfolio.First create a table and construct an XY(scatter)chart of E(r)and Beta.Label the points and draw in the SML. Figure7 illustrates this graph for the example portfolio.(Set the scale of your chart so that we can see the market index and your portfolio).

• What is the theory behind the SML and the CAPM?
• Does your portfolio appear fairly priced according the SML? Is it over or undervalued?
Which way should there prices move according to the theory?
• Which securities should you buy according to the theory?
• How well did your portfolio diversify your risk?
• Is your portfolio closer to the SML than the individual securities?What does this indicate about its level of systematic risk?

Performance Measures
Construct Table11 showing arithmetic and geometric mean percent return,cumulative wealth, standard deviation,and Beta as well as 3risk adjusted performance measures.Read chapter18 (Bodi8ed)related to the 3risk adjusted performance measures ;Sharpe,Treynor,and Jensen’s Alpha.Table11 shows these performance measures computed for each security for the example portfolio.

Excel functions: Sharpe=(E(r)-Rf)/σ
Alpha=(E(r)-Rf)- β*(Rm-Rf)

Note: disregard negative signs for Beta when computing the Treynor measures.


• In terms of return and cumulative wealth how do your securities compare?In terms of risk how do your securities compare?
• What is the meaning of the Sharpe, Treynor, and Jensen Alpha performance measures? What do they indicate both relative performance of a portfolio?
• In terms of each of the risk adjusted performance measures how did your securities do and your portfolio rank compared to each other?
• How do you explain the differences in performance of your investment using these three measures?
• In terms of the Alpha risk adjusted performance measures how did your securities perform compared to the market and the T-Bill? Why do you think that Alpha is the most popular measure of active performance?
• Did your portfolio“beat the market”accordingtothe3 performance measures?
• How do you explaindifferencesinrankingbetweenthe6 measures?
• Which risk adjusted performance measure do you think is the most relevant?
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