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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

 

 

 

 

Standarddeviationofreturns

 

 

 

 

Sharperatio

 

 

 

 

Standarddeviationof              residualsfromsingleindex   modelrelativebenchmark**

 

 

 

 

Jensen’salpha**

 

 

 

 

Beta**

 

 

 

 

Treynormeasure**

 

 

 

 

Appraisalratio**

 

 

 

 

**Thesemeasuresshouldbecomputedrelativetothebenchmark,i.e.your‘market’isthe‘benchmark’.

IV.Conclusion:

Didyourportfoliooutperformthebenchmarkconsidering eitherone alternative:

a.   Itispartofa biggerretirementportfolio?

b.   Itisheldonastand-alonebasis?