FIN 6275, Part I, Spring 2022 Homework 3
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FIN 6275, Part I, Spring 2022
Homework 3
HOMEWORK 3: PORTFOLIO EVALUATION
Thishomework assesses theperformanceof your portfolio relativetoabenchmark. Youcandothis homeworkin Excel (submittheexcelfile)orin Matlab andprovidethecodeandresults.Yourchoice!
Goal: Thishomeworkevaluateshowthebestriskyportfolioyoucreated inhomework2doesrelativeto anaiveequalweightedbenchmark. YouuseddatauptoDecember2019 tocreateyourbestpossible portfolioandnowyouwillseehowitdoesout-of-sample fromJanuary2020 toAugust2021.
I. Sampleperiod = 20 months
(fromJan2020 to August 2021,months253-272 inyouroriginaldata matrixR)
Onlytakethelast 20 months ofETFdatayou’vecollectedfromBloomberg.
II. YourPortfolio = yourbestriskyportfolioof 9ETF (withweightstheriskyweights[RiskyWts] youcomputedinhomework2 IVii., i.e.theriskyportfoliowiththehighestSharpeRatio)
Youwillevaluatehowthis bestriskyportfolioyoucreated didoverthe next 20 months.
Assumetheriskfreerateis 0.001 permonth.
III. The Benchmark
Constructan equallyweighted averagereturnofyour9ETFs.Thiswillbeyourbenchmarkportfolio.
(Hint:youhavea 20x1vectorofreturnsforyourportfolioanda 20x1vectorofreturnsforthe Benchmark).
IV. PerformanceEvaluation:
Computethefollowingmeasuresforyour Portfolio andthe Benchmark.Foreachoneexplainhowyou havecalculatedit, or whatformulasyou’veused,andthenfillinthetablebelow. Indicatewhetherthe portfolioorbenchmarkarebetterbasedoneachstatistic.
|
Your Portfolio(P) |
Your Benchmark(B) |
Which oneis better(PorB) |
Formula |
Averagereturn |
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Standarddeviationofreturns |
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Sharperatio |
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Standarddeviationof residualsfromsingleindex modelrelativebenchmark** |
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Jensen’salpha** |
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Beta** |
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Treynormeasure** |
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Appraisalratio** |
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**Thesemeasuresshouldbecomputedrelativetothebenchmark,i.e.your‘market’isthe‘benchmark’.
IV.Conclusion:
Didyourportfoliooutperformthebenchmarkconsidering eitherone alternative:
a. Itispartofa biggerretirementportfolio?
b. Itisheldonastand-alonebasis?
2022-02-26