Unformatted text preview: and 1, so . The spreadsheet “Variance Minimization.xlsx” has an example. As an exercise create your own spreadsheet for a portfolio of 2 stocks with variance covariance matrix 1.5E063.1E073.1E07 1.99E06 And mean returns of 0.00808 5 0.002376 Start with weights of ½ and ½ and find the mean return and the variance of the return of such a portfolio. Change the weights by hand (note they must sum to 1) to find a minimum variance portfolio. Now do it using the solver tool. Next add third security. With covariance matrix 1.5E063.1E07 1.07E073.1E07 1.99E063.3E07 1.07E073.3E07 2.12E06 And expected returns 0.00808 5 0.002376 0.003128 Start with the solution you got for the first two and weight of zero for the new security. Now add the security and vary weights to find a new minimum variance portfolio made up of the three securities. You can do it by hand, but easier to do it using the solver tool....
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 Spring '12
 Finance, Variance, Probability theory, Covariance matrix, minimum variance portfolio, variance covariance matrix

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