PORTFOLIO MANAGEMENT AND ANALYSIS ASSIGNMENT -
Instructions:
Open a new Excel file. Name it [YOUR-NAME_YourFirstName.xlsx]. Create Tubs named "A1", "A2", "A3", "S1", "S2", "S3", "S4", S5", "S6", "S7", "G1", "G2". "A2", "M1"
In tab "A1" explain the main characteristics of the funds in which investors can invest within your assigned Morningstar's category (strategies, sector and country allocations, company size, recommended holding period diversification....). That step requires some research for you (you may need other sources than Morningstar!). Also assess the level of risk and the return potential of the category. By reviewing all the funds in all categories ("not necessarily your assigned category), indicate which fund could be considered as risk-free and identify a proxy for the market portfolio. Justify your choices.
Among the list of the funds of your assigned category, select five funds. Report the selection and the related information on tab "A2". Indicate which funds are dominated by one or several others (indicate which ones) in the mean-variance framework. Explain in detail your answer.
On the same tab. indicate which information is missing at this point to construct the frontier of efficient portfolios with these 5 funds.
Download ("from Bloomberg. Reuters. Yahoo Finance, the fund's website or any other online source) historical weekly returns corresponding to 3 time horizons (1 year. 2 years and 5 years) for each of the 5 funds, plus the proxy for the market portfolio. Report this dataset on tab "A3". For each fund, build:
- the vector of means (on tab "S1")
- the covariance matrix (on tab "S2")
- the correlation matrix (on tab "S3")
- the vector of Sharpe ratios (on tab "S4")
- the vector of market betas ("on tab "SS")
On a new tab called "G1" plot the funds in the mean-standard deviation space, and construct the frontier of efficient portfolios (from a dataset on tab "86". Use the five funds to construct the efficient frontier"). Assume no short sale is allowed.
In tab "G2", determine what is the composition of the optimal risky portfolio (consisting of your five funds) for each time horizon and for each of the following risk profiles (coefficients of risk aversion):
- 3 if you're a strongly risk-averse investor,
- 1 if you are less risk-averse.
- the appropriate coefficient of risk aversion when you are risk-neutral.
Represent graphically where each portfolio plots for each time horizon and comment the potential similarities and differences in the asset allocation. If you were also allowed to invest in the proxy for the market portfolio (in addition to the 5 funds), how would change your results? Show it graphically.
Add the fund that you determined as being the risk-free one and determine what is the optimal combination with the optimal risky portfolio (Consisting of the 5 funds) for each risk profile listed in the previous question and for each time horizon. Represent them graphically on tab "G3" and comment the potential similarities and differences in the capital allocation.
If each investor decides to invest in only one fund, in which one would it be (assuming ('s) he holds no other risky investment)? Report your answer and arguments in tab "A4". Is it consistent with Morningstar's star ranking (the best fund has five stars. the worst one star)? That is, would it be in the higher ranked fund?
What if an investor already invests in many other assets belonging to each Morningstar's category? Report your answer and arguments in tab "A4". Are the best star ranked funds by Morningstar the most attractive for this investor? Are they "cheap"? "expensive"?
Would you classify the funds you selected in the same category as Morningstar (in their "Style" category, or through their star ranking) for the l-year time horizon? Which indicators would you use to justify your answer"? Report your answer and arguments in tab "M1". If you adopted your classification, what would change in your previous work if you only considered historical data on a l-year time-horizon? List the changes, show your calculations, results, graphs, answers and conclusions in the tab "M1".
Output needs to be in excel format.
Attachment:- Assignment Files.rar