Assignment Problem: International Portfolio Project
i-shares (i for international)
"Open-end" "country funds" are an easy way for U.S. investors to participate in the stock markets of countries/territories outside the U.S.
A country/territory fund is a basket of the more actively-traded stocks that are listed on a foreign stock exchange.
The basket portfolio is listed on a U.S. exchange and trades under a single "ticker symbol". For example, the ticker symbol "EWZ" represents a basket of stocks that trade on the Brazilian stock exchange. The basket is listed on and trades on the NYSE. The U.S. investor in EWZ is exposed to both the market risk of the Brazilian stock market, as well as the currency risk of the Brazilian currency, the real. If the Brazilian currency and the Brazilian stock market both strengthen together, then the U.S. dollar-based investor gains in both ways.
The project will examine the following country/territory etfs:
(1) Australia - EWA
(2) Canada - EWC
(3) Sweden - EWD
(4) Germany - EWG
(5) Hong Kong - EWH
(6) Italy - EWI
(7) Japan - EWJ
(8) Belgian - EWK
(9) Switzerland - EWL
(10) Malaysia - EWM
(11) Netherlands - EWN
(12) Austria - EWO
(13) Spain - EWP
(14) France - EWQ
(15) Singapore - EWS
(16) United Kingdom - EWU
(17) Mexico - EWW
(18) South Korea - EWY
(19) Brazil - EWZ
(20) South Africa - EZA
(21) U.S. - SPY
As well, your study will also analyze monthly values of (1) the VIX as additional portfolio diversifier.
Please perform the following:
(1) The optimal portfolio has already been selected. The following lists the etfs with non-zero weights and their weights.
Hong Kong 9.19%
Switzerland 20.61%
Malaysia 8.03%
Mexico 13.59%
U.S. 34.24%
VIX 14.34%
100% more or less
Also given in the Excel spreadsheet are the individual etf Sharpe ratios and the correlations between etfs.
For the above list of non-zero-weight etfs - explain why these particular etfs (including the VIX) were chosen to be in the optimal portfolio, in terms of:
(a) Individual Sharpe ratios and
(b) The correlations listed in the table.
(2) Back testing
Data on each etf is listed in the table. What is listed are the etf returns for each etf over the period: 3/3/2003-9/1/2015.
Use the optimal portfolio weights - to generate what the returns would have been for the optimal portfolio over the sample period (3/3/2003-9/1/2015).
Form the optimal portfolio's month-by-month returns from the historical data;
Then what is the mean, standard deviation, skewness ("skew") and kurtosis ("kurt") of the optimal portfolio backtested results.
What is your interpretation of your results?
Present your results in a professionally prepared report.
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