Note:
Tabs in the workbook are labeled. Data is from five-year returns on ten
DJIA-listed stocks and the S&P 500, though I didnt benchmark anything
with the index.
The Covariance tab is just a run-though to find the envelope for each
portfolio given a certain constraint. Then theres a few other
calculations and a covariance portfolio utilizing excess returns method.
The Portfolio tab takes the Covariance data and creates an efficient
portfolio. The returns werent too exciting, which was a disappointment,
but keep in mind those are monthly and not annualized.
For the Optimize tab, we ran several scenarios: equal weight, max
return with low standard deviation, minimum standard deviation to
produce the highest return, and overall highest Sharpe Ratio possible.
No short-selling was allowed in any instance and I used a risk-free rate
at 0.25%.
Assets
S&P 500 0.459324 0.3747401
GE -0.063171 -0.045432
MMM 0.017043 0.0704766
DD 0.005129 0.0130747
NKE 0.040602 0.054646
INTC -0.022240 -0.019716
CSCO 0.000422 0.0081706
JNJ 0.341082 0.355342
MRK 0.006395 0.0128311
PFE 0.106109 0.1051208
XOM 0.109305 0.0707455
Data/Regression Calculations
S&P 500 GE MMM DD NKE INTC CSCO
Alpha -1.9E-005 0.0001577 0.0002887937 0.0001202 0.000256 4.68E-005 0.0001304
Beta 1.0038431 0.9684578 0.9422412629 0.9759695 0.9488007 0.9906313 0.9739228
R-square 0.8610336 0.4002409 0.5294403953 0.3081722 0.2631502 0.2798262 0.2585337
Variance 0.0080891 0.0114463 0.0096827888 0.0131458 0.0138299 0.0140028 0.0143223
Sigma 0.0899397 0.1069876 0.0984011626 0.1146551 0.1176007 0.1183334 0.1196758
Sigma Mean
Ratio of 0.5%
-1.0
-0.9
-0.8
-0.7 Efficient Frontier
-0.6
1200.000%
-0.5
-0.4
-0.3 1000.000%
-0.2
-0.1 800.000%
0.0
0.1
Mean 600.000%
0.2
0.3
0.4 400.000%
0.5
0.6 200.000%
0.7
0.8
0.000%
0.9 0.000% 200.000% 400.000% 600.000% 800.000%
1.0
Sigma
d to find the mean and standard deviation of a portfolio, so I went with
x it up a little.
uations:
1.5)
1.52 + 2 * (1-) * (0.5,1.5)
d deviation
5 indicate the constants utilized in each portfolio and those are supposed
e equations.
fficient Frontier
Sigma
Sample Optimal Portfolio
Constraints and Weights
Bonds
A B C
Coupon 7.11% 5.42% 6.80%
Maturity (Years) 6 10 15
Payments 12 20 30
Face $1,000 $1,000 $1,000
Payment Frequency 2 2 2
Date 3/6/2017 3/6/2017 3/6/2017 Dates are in Excel format and count da
3/5/2023 3/4/2027 3/2/2032 today and the given bond maturities.
used to find duration.
$1,100.00
that target duration table aboe
to see which combination of
the two makes the most
sense.
1% $1,033.85 $1,087.49 Bond Portfolio
2% $1,031.88 $1,080.99
3% $1,030.64 $1,120.00
$1,076.24
4% $1,030.13 $1,073.11
$1,100.00
5% $1,030.32 $1,071.49
6% $1,031.23 $1,071.29
$1,080.00
7% $1,032.83 $1,072.41
8% $1,035.12 $1,074.79
$1,060.00
9% $1,038.10 $1,078.35
10% Value
$1,041.75 $1,083.04
$1,040.00
11% $1,046.09 $1,088.80
12% $1,051.10 $1,020.00
$1,095.58
13% $1,056.79 $1,103.36
14% $1,063.15 $1,000.00
$1,112.08
$980.00
0% 2% 4% 6% 8%
YTM
format and count days between
n bond maturities. This was
on.
Sensitivity Analysis
Bond A Bond B Bond C
Three-Bond Sensitivity Analysis
$1,588.10
$1,700 $1,504.13
$1,429.33 Bond
$1,600
$1,362.88 A
$1,500 $1,304.07 Bond
$1,252.23 B
$1,400
Bond Value $1,206.79
$1,300
$1,167.20
$1,200 $1,132.99
$1,100 $1,103.74
$1,079.06
$1,000
$1,058.61
$900 $1,042.07
$1,029.17
$800
-2% 0% $1,019.66
2% 4% 6% 8% 10% 12% 14%
YTM
Bond A & B
Bond A & C
YTM
Duration Example for 5.5% YTM
YTM 5.50%
Bond A Bond B
Year Coupon Calc. Year Coupon Calc.
1 $71.10 0.062377 1 $54.20 0.051686
2 $71.10 0.118249 2 $54.20 0.097983
3 $71.10 0.168127 3 $54.20 0.139312
4 $71.10 0.212483 4 $54.20 0.176066
5 $71.10 0.251757 5 $54.20 0.208609
6 $1,071.10 4.313906 6 $54.20 0.237281
7 $54.20 0.262396
8 $54.20 0.284247
NPV $1,080.43 9 $54.20 0.303107
Duration 5.1268987 10 $1,054.20 6.20905
NPV $993.97
Duration 7.9697388
Bond C
Year Coupon Calc.
1 $68.00 0.057015
2 $68.00 0.108086
3 $68.00 0.153676
4 $68.00 0.19422
5 $68.00 0.230118
6 $68.00 0.261746
7 $68.00 0.28945
8 $68.00 0.313555
9 $68.00 0.334359
10 $68.00 0.352142
11 $68.00 0.367163
12 $68.00 0.37966
13 $68.00 0.389856
14 $68.00 0.397957
15 $1,068.00 6.347598
NPV $1,130.49
Duration 10.1766