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FIN 341 Portfolio Analysis




Question;This first report should outline your groups portfolio creation criteria and investment objectives. Thereport should be typed, double spaced, and no more than 3 pages. The following topics should beaddressed in your report. Note that you do not necessarily need to address each aspect in the followingpoints, and you should feel free to include another aspect if not included below. Please include yourgroup name as well as the group members.What is the investment style of your group for your buy/sell portfolio? Will it be geared moretowards growth or income or a mixture? Would you classify your style as aggressive orconservative? What strategy are you going to employ for your second portfolio?What criteria will you use for selecting securities? This should be something more objective thancompanies that have good reputations or stocks that I have heard of. Are you going to use anasset allocation scheme (i.e. allocate across different equity classes)? If so, will your percentagesremain fixed or will they vary based on perceived under/over valuations? Will you only selectsecurities which conform to certain fundamental specifications? For instance, only firms with P/Eratios below 10 or only companies with less than 20% leverage. Are you selecting securities basedon some economy-wide strategy? For example, are you only going to buy gold mining or oil stocks?Will you be trading in closed-end mutual funds? Will you only buy firms which have done well inthe past? Is your group going to rely on charts to determine which securities to buy? Will you baseyour decisions on news reports? For example, are you going to select firms which are likely to betaken over? How will you decide which firms are likely targets? Will you use the financialstatements to calculate ratios and perform other fundamental analysis?In your buy/sell portfolio, should you re-evaluate your portfolio if a security no longer meets yourspecified criteria? In your speculative portfolio, what trading rules will you use? For instance, shortsell any stock / option that rises by 7% or buy a stock / option which has abnormally high volume fortwo consecutive days. How frequently will you revise your portfolios? Daily, weekly, randomly?What risks will your portfolios face? Are there ways to lower the risks? What macro-economicfactors may impact your portfolio returns? Given the risks, who should invest in your portfolio? Forexample, are your portfolios a good investment for conservative investors who want high incomewith low risk?What is the appropriate benchmark against which your buy/sell portfolios performance shouldbe measured? For instance, if your portfolio is heavily weighted in technology stocks, should youuse the Nasdaq composite index or the S&P 500? If you are only investing in small companies, isthe Dow Jones Industrials the right index to be measured against? You want to use a benchmark thatis similar to your portfolio so that your performance can be accurately analyzed.Final ReportThe final report should provide a comprehensive examination of your portfolios composition andperformance over the quarter. The report should be double-spaced and no more than 10 pages, notincluding graphs, figures, etc. The majority of the following analysis only concerns the buy/sell portfolio.For purposes of your report, you only need to include performance through the 9 th week of the course.Each report will include a qualitative and quantitative section. Each report should include the following:Describe your two portfolios and how they are consistent with the stated strategy from the initialreport. If you have deviated from your original strategy, explain why. What happened? Did yousimply deviate with a single security or did you completely change your investment strategy. If youchanged your strategy, why did you do so?Calculate the holding period return (ignoring dividends) from the start of the simulation to the end ofthe simulation of your two portfolios. For your buy/sell portfolio, calculate the benchmark youselected as appropriate. Using only returns, did you beat the benchmark that you selected? Did yourspeculative portfolio beat your buy/sell portfolio?For all of the quantitative calculations that you will perform (see below), include the relevantinformation in the write-up: What are the implications of the numbers that you calculate? Interpretyour calculations and explain their significance. (example: what were the alpha and beta of yourportfolio and what can we determine about the portfolios risk and return).Describe your most successful investment (note: this may not necessarily be the asset with thegreatest return) in each portfolio. What mistakes did your team make? If you had the chance to startthe simulation over, would you choose the same strategy or something different? Why or why not?What was the one thing that you learned from this simulation that stands out above everything else?What do you think reason is for why your speculative portfolio under / overperformed your buy/sellportfolio?Required Calculations (only for your buy/sell portfolio!)alculate daily holding period returns for your portfolio. You may ignore any dividends that werepaid in this calculation. Calculate the average return, the variance, and the standard deviation of yourportfolio using the daily returns. Use the day that your group registered as the first day.Calculate the daily holding period returns on the index you are going to compare your portfolio to(e.g. S&P500 or another market index). Calculate the average return, variance, and standarddeviation of the index returns. You can download daily values of the S&P500 (and many otherindexes) at (click on the ticker, click on historical prices on theleft side of the screen, and then enter in the time period you want values for.)Calculate the covariance of the excess returns on your portfolio and the excess returns on the index.Use the appropriate daily risk free rate from the simulation. Calculate the correlation coefficient.Calculate the alpha and the beta of your portfolio. You may use linear regression to do this. Whatpercentage of the variance of your portfolio is explained by systematic risk? What was the level ofsystematic risk of your portfolio. What was the level of firm-specific risk in the portfolio?On a scatter plot, graph the daily excess portfolio returns versus the excess index returns (this isbasically the graph that we examined when we talked about the Security Characteristic Line). Plotthe SCL through the points.Calculate the Sharpe, Treynor, and Jensen, Information Ratio, and M 2 measures for your portfolio andfor the index. Compare them and interpret the results. How skilled were you at timing the market?Compare your portfolio to my randomly constructed portfolio, and explain why you think you out(or under-) performed it.


Paper#47801 | Written in 18-Jul-2015

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