W1A.docx - Description of Assignment 1 Portfolio Management(12.5 The purpose of the assignment is for student to use real data to have an in depth

# W1A.docx - Description of Assignment 1 Portfolio...

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Description of Assignment 1: Portfolio Management (12.5%) The purpose of the assignment is for student to use real data to have an in depth understanding of Markowitz portfolio theory and its interpretations. Students are encouraged to form group of 3 to 5 students to complete this assignment. On Week 8 (due date for assignment 1) and Week 14 (due date for assignment 2,) in addition for assignment 2 a short presentation via 3-minutes video recording of the assignment is required. The assignment report should not be more than 10 pages long. Please follow the following steps in order to complete the assignment. Step 1: Decide on your group members and submit the group member names to the lecturer. Step 2: Go to Yahoo Finance or any websites or databases such as DataStream to peruse 30 listed stocks data on any stock exchanges (stocks listed on Shanghai Stock Exchange SSE are also permissible). The data required is closing daily (or alternatively weekly or monthly) closing prices for 30 listed stocks over 61 days (or weeks/months). 1
Step 3: Compute the daily (alternatively, weekly/monthly) returns (ignoring dividend) of the 30 stocks using the holding period return/yield formula R jt = (P jt – P jt-1 )/P jt-1 Where R jt : return of stock j at time t P jt : Price of stock j at time t P jt -1: Price of stock j at time t-1 (1 period before) Preferably stocks with more positive periodic returns to generate positive Average/Geometric Returns are preferable. Example Gamuda Bhd No time Price(closing) HPR ^(HPR- AVG)^2 1 9/10/2012 3.57 2 10/10/2012 3.56 -0.0028011 9.18387E-06 3 11/10/2012 3.54 -0.005618 3.41915E-05 4 12/10/2012 3.52 -0.0056497 3.45637E-05 5 15/10/2012 3.44 -0.0227273 0.000527007 6 16/10/2012 3.47 0.00872093 7.21066E-05 7 17/10/2012 3.47 0 5.26106E-08 8 18/10/2012 3.47 0 5.26106E-08 9 19/10/2012 3.43 -0.0115274 0.000138221 10 22/10/2012 3.44 0.00291545 7.21504E-06 11 23/10/2012 3.45 0.00290698 7.16958E-06 12 24/10/2012 3.46 0.00289855 7.12453E-06 13 25/10/2012 3.5 0.01156069 0.000128399 14 3.5 0 5.26106E-08 15 3.57 0.02 0.000390878 16 3.57 0 5.26106E-08 2
17 3.61 0.01120448 0.000120453 18 3.75 0.03878116 0.001486241 19 3.58 -0.0453333 0.00207596 20 3.67 0.02513966 0.000620523 21 3.64 -0.0081744 7.06231E-05 22 3.66 0.00549451 2.77217E-05 23 3.66 0 5.26106E-08 24 3.68 0.00546448 2.74064E-05 25 3.68 0 5.26106E-08 26 3.7 0.00543478 2.70963E-05 27 3.7 0 5.26106E-08 28 3.69 -0.0027027 8.59705E-06 29 3.65 -0.0108401 0.000122533 30 3.66 0.00273973 6.30189E-06 31 3.69 0.00819672 6.34787E-05 32 3.67 -0.0054201 3.1916E-05 33 3.66 -0.0027248 8.72709E-06 34 3.67 0.00273224 6.26436E-06 35 3.57 -0.027248 0.000755003 36 3.54 -0.0084034 7.45241E-05 37 3.63 0.02542373 0.000634756 38 3.65 0.00550964 2.78813E-05 39 3.6 -0.0136986 0.000193989 40 3.6 0 5.26106E-08 41 3.57 -0.0083333 7.33199E-05 42 3.57 0 5.26106E-08 43 3.57 0 5.26106E-08 44 3.58 0.00280112 6.6139E-06 45 3.57 -0.0027933 9.13651E-06 46 3.59 0.00560224 2.88677E-05 47 3.64 0.01392758 0.000187641 48 3.55 -0.0247253 0.000622734 49 3.6 0.01408451 0.000191965 50 3.62 0.00555556 2.83683E-05 51 3.64 0.00552486 2.80422E-05 52 3.63 -0.0027473 8.86028E-06 53 3.62 -0.0027548 8.9054E-06 54 3.6 -0.0055249 3.31112E-05 55 3.6 0 5.26106E-08 56 3.58 -0.0055556 3.34654E-05 57 3.64 0.01675978 0.000273254 58 3.7 0.01648352 0.000264197 59 3.6 -0.027027 0.000742911 60 31/12/2012 3.6 0 5.26106E-08 61 sum 0.01353268 0.010288081 3
AVG 0.00022937 0.013318435 1.331843 0.000229367 AVG (formula) 0.00022937 0.013318435 0.013318 Step 4: Compute the average return and standard deviation of returns of the 30 stocks using the following formula. Alternatively, students are encouraged to use the statistical function commands to compute average returns and standard deviations. R j = ( R jt )/n = AVERAGE RETURN OF STOCK J = √{[ (R jt -R J ) 2 ]/n-1} = STANDARD DEVIATION RETURN OF STOCK J Step 5: Compute the Coefficient of Variation (CVj) of each stock j. Rank the CVj from lowest to highest. Write a brief description of the distribution of the CVs of the 30 stocks. CV j = /R j Step 6: Choose any two stocks with positive average returns and standard deviation of returns. The two stocks must meet the following criteria; If AR1 > AR2, then    Or alternatively If AR1 < AR2, then    Step 7: Compute the correlation coefficient of the two stocks (you may also use the covariance formula) using the following formula or alternatively using the CORREL statistical command in excel.