Final Team Portfolio Project.

Final Team Portfolio Project

Prof. Efremidze

Part 1

In this project you will select assets based on your investment strategy and select stocks. Then you will create three portfolios with these stocks and backtest their performance.  

For the next week, work on making progress on accomplishing Part 1 tasks. Select 10 stocks from ValueLine S&O report (date of the report for each team is different and Table name is specified for each team in the excel file of teams).  Describe how you selected 10 stocks out of 20 stocks.  You can use 1, 2 or 3 criteria from the specified table to identify 10 stocks out of 20. Please describe why you use these particular criteria to select your stocks, justify with investment theories you learned these choices.

Bring the list of stock symbols to class and be ready to discuss your criteria.

Part 2

You will need S&P500 market index as benchmark so you can evaluate your portfolio performance. Please make sure that each benchmark series has enough pricing history to cover your Period 1 and Period 2 times available on Yahoo finance.

Using the R program file, you will calculate weekly returns, standard deviations, betas, and optimal weights.  Detailed program is posted on Sakai.

Using posted excel file calculate fundamental weights for Fundamental-weighted portfolio  (use net income for each company (based on the earnings report within last 3 months before the date of the Value Line Report),  and assign relative weights to each stock based on this measure.  Sum earnings of all stocks to calculate the divisor. The weight of each stock would equal the stock’s earnings divided on the devisor. All weights should add up to 1.

Now we will form equally weighted portfolio (each asset has equal weight in the portfolio) at the beginning of the testing period (Period 2).

Calculate performance measures for the three portfolios and your banchmark

Returns, standard deviations, annualized Sharpe ratio, CAPM beta, CAPM alpha, active premium, tracking error, information ratio, Sortino ratio, semideviation, maximum drawdown, Treynor ratio.

Present these results in well formatted tables (no particular format is required, as long as they are user friendly and clear and high quality).

Present graphs of each portfolio and indexes.

Deliverables:

a) On two pages discuss following:

1. Describe your investment strategy, objectives conceptually and numerically, benchmarks used and selection criteria for assets in a policy statement style.
2. How did each portfolio perform?
3. Discuss risk measures and offer your opinion which portfolio offers better risk-return tradeoff.
4. Discuss why your portfolios performed well or poorly and offer suggestions how would you improve the strategies.

b) On 4 pages include graphs, tables and all numerical results asked above. No need to include historical stock prices.

c) Include the R session data file and notepad file of R commands with clear comments of what you did. Upload these two files and the word file of the report to your Sakai dropbox.

d) Hand in the hard copy of the report in class in Week 7.

e) Present 10 slide presentation (10-12 minutes) in class, summarizing your results and strategy.