# Portfolio analysis

Portfolio analysis
(attached you excel document with the order, firms picked are 1.A.O Smith Corporation

2. ABM Industries

3. Actuant

5. A.H. Belo corporation

6. AU Optronics

7. Auto Nation

8.Avery Dennison

9. Avianca Holdings

10.Aviva Plc.)

Client #2015-03b: Internal tests of portfolio recommended to Kim & Rich, especially mean- variance portfolio optimization (6-10 pages, excluding appendices).

The objective of this assignment is to apply mean-variance analysis to the portfolio of firms you put together for the couple of the previous assignment (Client 2009-02: Kim and Rich). These are the steps to follow according to internal company protocols:

1. The sample
Build a sample of security returns for the recommended firms. You will need to a) obtain stock prices, monthly, for at least five years. You may get stock price quotes fromhttp://www.yahoo.com. Then, you use EXCEL to calculate stock returns (see â€œreturns- calculationsâ€ page in the aforementioned spreadsheet). Two formulas commonly used are rt = (pt â€“ pt-1)/ pt-1, and rt = ln(pt/pt-1), where â€œlnâ€ stands for the natural logarithm.

2. Mean-variance

a) Calculate mean-variance risk and return indicators (average returns, variances and

covariances).

b) Calculate the tangent portfolio (see page â€œtangentâ€ in ia-meanvar.xls).

c) Comment on the results â€“you decide what merits comment.

d) Extra-credit: Calculate some optimal portfolios (short sales, and no short sales) and

draw the efficient frontier. (See page â€œqp-rpâ€ in ia-meanvar.xls).

3. Concentrate on the tangent portfolio for this part.

a) Do optimal portfolio weights reflect the fundamentals you have observed? (That is,

explain whether companies with strong fundamentals have large optimal portfolio

weights).

b) In general, do you think portfolio theory is useful?

c) In the particular case of your sample (time, economic situation, specific choice of

securities), do your think portfolio theory helps?

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portfolio analysis

1) Expected return for A and MÂ Â Â  A = 16.2Â Â  M = 13

2) Standard deviation for A and M (population)Â  A = 4.1425Â  M = 2.5690

3) Covariance(A,M)Â Â Â  COV =Â  -.6

4) Correlation(A,M)Â  CORR = -.0564

5) Expected return on a portfolio consisting of 30% A and 70% M.Â Â Â  P = 13.96

6) Standard deviation of a portfolio consisting of 30% A and 70% M.Â  P = 2.1275

7) The Beta of A. (assume that M is the market)Â  BETA = -.0909

8) The portfolio weights for the minimum risk portfolio.Â  W(A) = .2885Â  W(M) = .7115

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